This is a rush transcript from "Special Report," November 12, 2010. This copy may not be in its final form and may be updated.


REP. NANCY PELOSI, HOUSE SPEAKER D-CALIF.: We support the tax cuts for everyone, but not an additional tax cut at the high end. It's too costly. Those tax cuts have been in effect for a very long time. They did not create jobs.

PRESIDENT OBAMA: My hope is that somewhere in between there we can find some sort of a solution. But I am not going to negotiate here in Seoul. My job is to negotiate back in Washington.

SEN. ORRIN HATCH, R-UTAH: The president is playing games, trying to act like he's the only one who cares for middle class. There is not anybody who doesn't want the middle class to have this tax relief.


BAIER: Well there you see it, the back and forth about extending the Bush era tax cuts. What will happen in the lame duck session of Congress?  Let's bring in our panel tonight, Fred Barnes, Executive Editor of The Weekly Standard, Nina Easton, columnist for Fortune magazine and syndicated columnist Charles Krauthammer. OK, so topping the agenda Fred will likely be this extension, because on January 1 all the taxes go up.

FRED BARNES, EXECUTIVE EDITOR, THE WEEKLY STANDARD: Lame duck sessions are always wildly overrated. They don't usually do anything more than they actually have to. Sometimes they do less than they have to. But I think they’ll have to act on Bush tax cuts.

There is obvious agreement. The president will have to agree to extend all the tax cuts, including for the wealthy.

BAIER: Despite all of this back and forth from the White House and the president and Axelrod.

BARNES: It's all game-playing. He will have to do it. It's in his best interest.

The president doesn't understand for his reelection, you know who his best friends are now? Republicans. The thing he needs more than anything else is a strong economy.  And the last thing that will help the economy is raising tax cuts on exactly the people who invest in start-up and create more jobs and more economic growth. He doesn't want to do that. So they have to do something about a budget, because the spending for the federal government expires and they'll extent it one way or another. Then there is the doc fix so doctors don't have a drop in what they get in Medicare.

BAIER: That is roughly $230 billion.

BARNES: And they may kick that down to the Congress, but I don't think they'll do what they need to deal with the things they need to deal with.

NINA EASTON, COLUMNIST, FORTUNE MAGAZINE: This is actually going to be a fascinating lame duck session because it will preview how this president deals with the Republicans and the base of his party. He has to keep his base happy who are very unhappy with him now with a more liberal base in the house.

BAIER: Is this negotiation making them more unhappy?

EASTON: It's making them very unhappy, very cranky. And as Fred said, his best friends going to 2012 is a better economy. He is traveling by the way with CEOs on the overseas trip who are talking in his ears. He needs to give a sense of stability and certainty to the business community, to investors. This is not just on the wealthy that the tax cuts could go up. It's also capital gains, dividends, small businesses.

So I think he will cut a deal with Republicans for at least a temporary extension on that and call it a day.

BAIER: Charles, these are some of the things talked about and floated out there for possibilities in the lame duck session of Congress.  First of all, the Dream Act to deal with illegal immigration. Social Security cost of living adjustments, checks out to seniors even though inflation hasn't been declared, employment non-discrimination act. Bush era tax cuts, we talked about, the doc fix that Fred mentioned, and the continuing resolution he also mentioned.

Those are possibilities. Of those what do you think gets done?

KRAUTHAMMER: I think anything that involves ideological debate is not going to happen. What is going to happen in the lame duck session is only stuff that has to be done, as Fred said. You have to get the doc fix fixed even if it's temporary. It's been done every year. For the last decade, it's almost automatic.

You have to have a continuing resolution; otherwise the government will shut down. Tax cuts will be done because you don't want to do it next year. Otherwise, if you do it next year the rates have to be retroactive and you get all this difficulty and uncertainty at the beginning of next year.  It's clear when the president said he is ready to do, he doesn't want to raise -- he doesn't want to extend the cuts for upper income permanently. What he says is he will do a temporarily one.  Clearly the Republicans won't allow decoupling where one of the extensions is temporary and the other is a permanent one. We will get probably what Peter Orszag had recommended six months ago, which is a temporary extension of all the cuts. That is sort of written in to the agenda.

BAIER: Now the fight is over how long the temporary extension is, two years, three years, five years? Orrin Hatch has talked about five years for certainty of business.

KRAUTHAMMER: I'm not sure it matters. We will have a complete restructuring of the code anyway. We got a hint of that from the deficit commission. If the Republicans are serious about cutting spending, which they are, and controlling deficits, you'll have to have a 1986 tax reform where you cut out loopholes and you lower rates.

And so I'm not sure it will matter if it's six-year, three-year thing. It’ll be temporary at least until Election Day next time around.  And that is enough certainty people have for time being.

EASTON: One of the issues we haven't touched on in this lame duck session was "Don't ask, Don't tell."

BAIER: True.

EASTON: There is actually, very slim possibility, unlikely, but the only chance to overturn "Don't ask, Don't tell" legislatively which is what the president says he wants because you have a large Republican majority in the house going in to 112th Congress.

But the problem is that it's wrapped up -- they could get the votes in the Senate on it. It's wrapped up in the defense spending bill, which is being all long procedural stuff being blocked because of this Dream Act that Harry Reid has. Basically it gives permanent residency to illegal immigrants who are underage 18 if they go to college for a couple of years or they join the military.  And Republicans are steadfast in opposing that not so much because of the bill because it does have Republican supporters but because they think it's a political ploy because he stashed, Harry Reid stashed this immigration thing in to the defense funding bill. So that shut the whole system down.

BARNES: I'm shocked! Harry Reid, a political ploy?


Charles brought up the debt commission. Who are the friends of the president? Who went crazy in opposition, went berserk really, Nancy Pelosi in particular, about the recommendations of debt commission. Some were good, I liked. A few I didn't.  But it would lead to spending cut of a lower deficit and reducing the national debt. That would help the economy and that would ultimately help President Obama get reelected.

BAIER: Will the get 14 out of 18 on the commission?


KRAUTHAMMER: On the Dream Act, its incremental amnesty and it doesn't have a chance.

BAIER: Logon to the homepage at FOXnews.com/specialreport and tell us what you think is the most important issue for the lame duck session. Vote in the online poll. Up next, the Friday lightning round.


BAIER: This is a Fox News alert. We just received word from the House Republicans and John Boehner and Eric Cantor, the incoming House speaker, presumptive House speaker, and incoming presumptive majority leader, saying earmarks have become the symbol of a dysfunctional Congress.

"Next week the House Republican conference including all of our newly elected members," they write, "will vote on a measure that would impose immediate ban on earmarks at the start of the 112th Congress. We welcome President Obama's remarks on earmark reform." And it goes on to say what they are hoping to do, "Washington has failed to prioritize the way taxpayer dollars are spent, and shutting down the earmark process is a good first step to begin righting the ship."  Thoughts on that before we do some Friday lightning round stuff.

KRAUTHAMMER: Keyword "symbol" in the statement. This is a symbol. In reality it won't save a dime because the money is appropriated anyway. It's the question is who decides, a congressman or a bureaucrat in Washington.

However, symbolism is important, so I'm not particularly against it. It won't make a difference in the budget. In the way the new speaker is going to go by airplane on commercial rather than in the special military jet as Pelosi did. It won't make a dent in debt, but its important symbolism.

EASTON: Symbol, I agree. The amount of money that earmarks add up to is something compared to what we've got to cut. It's a good thing. It's a great symbol. You have to worry about trivializing the kinds of cuts need when you've got the revenue coming in at 18 percent of GDP and spending to 24 percent of GDP.

These huge massive cuts have to be made and people have to been honest with the American people about what kind of cuts are going to come.

BAIER: Obviously, Boehner and Cantor heard the blow-back from the Tea Party and other places of about earmarks in the past week.

BARNES: Of course I have. Earmarks are unpopular with the majority of Republicans anyway. It's not so much just the Tea Party people. It’s Independents. The Republican coalition would have been there if the Independents hadn't shifted from Democrats over to Republicans. And Independents are heartily against earmarks, which do save some money.

I don't know why you're grouchy about saving a little money just because it won't save a lot of money. Let's start somewhere. I think it will pass because even the two guys competing to be chairman of the House Appropriation Committee, the two guys that identified with it in the past, Hal Rogers and Jerry Louis, they are now against earmarks. I think the ban passes the Republican conference.

KRAUTHAMMER: I don't feel grouchy. I feel factual.

EASTON: It's great symbolically.

BARNES: It's easier to cut elsewhere if you don't have money from earmarks.

KRAUTHAMMER: No it doesn't, because money is spent anyway.

BAIER: The Friday lightning round, out of control. We've already done the winner of the online viewers' choice for the lightning round, which was the lame duck Congress. We start this segment quickly with the second choice for the viewers, the week of Bush reflections.

As former president George W. Bush tries to sell his book Decision Point, he's been talking to a lot of folks. Charles, your thoughts on his thoughts?

KRAUTHAMMER: I think this helped a lot. I think a lot of people looked at him, genial, sincere, self-deprecating. It's reminded people why they liked him in the first place early on before the difficulties of the second term.

I thought he would be rehabilitated historically the way Harry Truman was. I'm surprised how early it's coming.

EASTON: The book itself is interesting because the model and structure is around these decision points. You realize as he tells it, that he was completely driven by one thing, all of his decisions, which is to prevent another attack on the United States. That was a driving force throughout his presidency.

BARNES: I'm sorry to say I missed a chance to have interview with the president along with some others because I was out of town and couldn't avoid that.

I like that President Bush admits the mistakes he made. Landing on the aircraft carrier with "Mission Accomplished" sign was a terrible thing and flying over New Orleans when Katrina hit was also bad. Usually these memoirs by a president are purely to defend everything they did. He hasn't done that.

BAIER: Quickly down the road, new cigarette warnings, they're considering putting these big pictures on cigarettes. Fred?

BARNES: Everybody in the world knows that cigarettes are harmful to your health. I smoked when I was a teenager and I knew they were harmful to my health. There is a tradeoff. Some people enjoy smoking and at some point later in life they realize it will shorten their life.

What do they want to do next? Put pictures on a Big Mac or Whopper and on the box put something like a clotted artery and somebody suffering from a heart attack or something? I mean, this is liberal nanny statism at its most unnecessary.

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