This is a rush transcript of "Special Report With Brit Hume" from December 18, 2007. This copy may not be in its final form and may be updated.


SEN HARRY REID, SENATE MAJORITY LEADER: Republicans are digging in their he els for the status quo. And on that issue, we're winning. The American people don't want the status quo. They want change, and we're the agents of change.


BRIT HUME, HOST: Well, I suppose that assertion ranks right up there with The Washington Post story that ran last week that explains that President Bush's victory on the budget were going to come at a high cost to him, and that he would pay dearly for them.

Some thoughts on this struggle now from Fred Barnes, executive editor of The Weekly Standard, Mort Kondracke, executive editor of Roll Call, and the syndicated columnist Charles Krauthammer — FOX News contributors all.

Well, we're getting down to it now. It's not clear exactly how the Iraq funding will get into this Spending Bill. The House version didn't have any in it and the Senate is working on it now. Where is this headed, and who is ahead, Fred?

FRED BARNES, EXECUTIVE EDITOR, WEEKLY STANDARD: Clearly Bush and Republicans are ahead.

HUME: How so?

BARNES: Because almost everything that Bush wanted out of the budget is gone, and that's what he tried to do. It's near his number, or right at his number for what the budget should be as a spending number. And Nancy Pelosi and Harry Reid have failed on almost everything in fights with the president.

Now Harry Reid was right about one thing. They have tried over the whole year to change what's going on in Iraq. They wanted to either curtail or end the war in Iraq.

And that would have been a big change if they could have achieved it, but they couldn't. And they are much worse of at the end of the year.

The spending bill in the Senate on Iraq, at $70 billion, will probably get 60 votes or more in favor of it. A year ago, back in January earlier in the year, Republicans were trying to block Democrats from getting 60 votes against the war to limit it. So they are much better of.

One other thing — you know what works if you want to limit spending? Divided government — because, look, if Republicans had won and you still had a Republican Congress and a Republican president, spending would have been higher.

MORT KONDRACKE, EXECUTIVE EDITOR, ROLL CALL: Good point. The fact is that the president, in the gamesmanship here, has definitely won. The Democrats receded on a lot.

And I'm glad he's going to win on the Iraq funding. It is irresponsible for the House of Representatives to pass military appropriations and not include funding for people in combat. That's totally irresponsible.

However, at the very same time, as messy as this process is a the end, with 11 billed all rolled into one and 3,500 pages that nobody has read, it is worth noting that one year ago, the Republicans left town without passing a funding measure for the government at all and just dumped it into the hands of the Democrats who took over in Congress.

Furthermore, as Fred noted, in the years that the Republicans were in charge, domestic spending went up by 9 percent a year. This one is about a 4 percent increase. Bush vetoed no bill, not one. Now he's Mr. Fiscal responsibility.

And at the same time that he's been fighting cats and dogs over $11 billion in increased domestic spending, he has insisted on an alternative minimum tax fix that will cost $50 billion, which the Republicans are refusing to pay for, which means it will be added to the cost —

HUME: You mean paid for by raising taxes?

KONDRAKE: By raising taxes or cutting spending. It is a tax cut for people who would be affected by the Alternative Minimum Tax otherwise. But there is no pay for it there.

CHARLES KRAUTHAMMER, SYNDICATED COLUMNIST: But on that issue and on everything else here, the president has won big, and he has won big. The big story of this year is that the president, who was written off as dead after last year's election, politically dead, came back, took control of the Iraq policy, and he won the battle of the budget.

And he won it because he took on the Democrats on the S-Chip. S-Chip was a test. It was —

HUME: This was the State Children's Health Insurance Program, which he vetoed not once, but twice. It was too big an expansion of it, he said.

KRAUTHAMMER: And it was the most easy for Democrats to demagogue. Here was an issue on which the president is accused of denying healthcare to the poor and sick children, no less. He answered that it was actually a middle class entitlement.

The Republicans in the House and the Senate stuck with him over and over again. The Democrats expected him to break, and he won.

Now, if you win on S-Chip, which is the easiest of all issues on which the Democrats might have won, you win the budget battle, which is what happened.

Now, there's a lot of stuff in here that is not that tasteful — 9,000 earmarks.

But that is like the sun rising in the east. That's going to happen always.

And also cheating on the numbers, because you have got all this emergency spending which is not emergency, including the security for the Republican and Democratic conventions next year on the grounds, I suppose, that nobody would expect that they year 2008 would actually arrive. And, other than that, it is business as usual.

But on the big issue of who won on the numbers, it's the president. He won on the war —

KONDRACKE: There are 40 percent fewer earmarks in this Bill than there were the last time the Republicans produced a budget. Who is irresponsible here? Furthermore —

HUME: But who was more in favor of cutting them this year?

KONDRACKE: Because the Republicans are now out of power, and they're not using earmarks in order to advance their political agenda.

Come on — this is not fiscal responsibility that the Republicans have ever practiced before when they were really in power. They were using the earmark process in order to advance their own political interests.

BARNES: And it didn't work. I mean, what do you remember from that whole period? You remember the earmark for the bridge to nowhere. Republicans hurt themselves.

If they came out against all earmarks, it would help them more than anything else.

One more thing — Mort has a new definition for a tax cut. It is when a tax increase doesn't go into effect. That's a tax cut? I have never heard that one before.

KONDRACKE: Please. You're not going to get as much revenue as you would otherwise. You got to make up for it somehow, and the Republicans aren't making up for it at all.

HUME: When we come back, 16 days until Iowa and the Republican sweepstakes. The Republican race seems as wide open as ever. We will talk about the GOP horse race in a moment.



MITT ROMNEY, PRESIDENTIAL CANDIDATE: When they look at the 1,033 pardons and commutations he handed out, they will see someone who was too liberal on crime.

MIKE HUCKABEE, PRESIDENTIAL CANDIDATE: To say I'm soft on crime is ludicrous. And I carried out something that no other candidate, including those who are most critical of me, have done, and that's the death penalty. And I did it 16 times.


HUME: While those tow guys are slugging it out in Iowa and beyond, and they are the two guys to reckon with at the moment.

There is a new poll out tonight — we don't have it to put up on the screen — but it basically shows that Huckabee is still ahead in Iowa 28 to 25. But that sampling is of people who say they intend to go to the caucuses.

Among those judged by the pollsters throw screen likely to caucus, it is the other way around — Romney 28-25. The conclusion is that has to be that that race is now a virtual tie. Anybody could win that.

But what are we learning here about this race? Where is it going? Is there any trend that we can notice, other than Huckabee — does this suggest perhaps that the Huckabee momentum has been braked a little bit by the criticisms?

BARNES: It doesn't really suggest that to me, but I think it's important that Romney is out criticizing him, because that's the only thing that's going to really stop it.

We get a lot of negative information about Huckabee and his record as Arkansas governor and so on back here in Washington, but I rather doubt if that is spreading among Iowa Republican voters very much, particularly Evangelical Christians, who are likely to show up at the caucuses. So I think romney has to take him on if he wants to beat him there, and it is important.

We see outside that, we see McCain gaining around. I have been out —

HUME: In New Hampshire in particular.

BARNES: In New Hampshire in particular, which he has to win. It looks like Rudy Giuliani is slipping some, or at least stalled. And Fred Thompson, who knows how he's doing? Right now in Iowa, it's two-way race, Romney and Huckabee.

KONDRACKE: Huckabee was leading according to some polls by 8, 10, 12, 20 points, according to one poll, I believe. And now if this poll is correct, now it has slipped back into a virtual tie, or a tie. And so that suggests that Romney is coming back, and maybe that the negative stuff on Huckabee has influenced some people.

Now, you know, there were a lost people besides Evangelical Christians who were attracted to him because he is a friendly guy and he is very quick on his feet, and so on. And maybe the criticism has gotten to some of those people and they're reconsidering.

HUME: Some of the things he has said, particularly his comments on foreign policy which we got a further dose of over the weekend when he was talking about the arrogance of President Bush, the bunker mentality that he criticized — I kind of wondered, Charles, whether that's the kind of thing that can't go down very well for very long with Republican voters, broadly speaking.

KRAUTHAMMER: What happened is Huckabee had a free ride because people did not have any idea what he believes on many of these issues, and I think the reason he might be hitting a peak, or at least a plateau, is because Romney is spreading the message about him.

What you have in Romney and Huckabee is the tortoise and the hare, a rich tortoise against the thrifty and shifty hare. And the rich tortoise who has been out there, he was ahead. He hasn't slipped a lot.

Huckabee's rise came out of Giuliani, Thompson, and others. Romney's numbers have been reasonably stable for the last three or four months. I think as people learn about Huckabee, I think it will hurt him.

In the same way that Giuliani defied gravity for eight months, because he is a social liberal — he was way up there in the polls nationally, but he is slipping in the national polls, slipping in Florida, slipping elsewhere, because ultimately, his social liberalism and his messy personal life have come out and have dragged him down. So it's really now a wide open and unpredictable race.

HUME: Giuliani's strategy made his first big chance, really, to be — well, I think he kind of drove past South Carolina and decided that wasn't fertile territory. Florida looks like it.

Now, we have a poll coming out tomorrow, and I can't reveal its exact contents yet because it's not ready, but, apparently, it's going to be some reasonably good news for Giuliani in Florida.

BARNES: But that doesn't mater. It doesn't matter what the poll says now.

Look, George Bush, in 2000 was 22 points ahead of McCain in South Carolina before the New Hampshire primary. The New Hampshire primary comes along and McCain clobbers Bush. So what happens after that? Bush is all of a sudden six points behind in South Carolina.

So what happens in Iowa, New Hampshire, and South Carolina leading up to Florida will have an enormous impact there and could change what happens there completely differently from this poll.

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