The sequester: Real crisis, politics as usual ... or both?

This is a rush transcript from "On the Record," Feb. 21, 2013. This copy may not be in its final form and may be updated.

GRETA VAN SUSTEREN, FOX NEWS HOST: The sequester, real crisis or politics as usual, or both? Karl Rove joins us. Nice to see you, Karl.


VAN SUSTEREN: OK, Karl, is this a real crisis for the nation, or is this just politics as usual or both?

ROVE: It's a crisis in this regard. We're talking about cutting 2.3 percent out of this year's budget. This year's budget is bigger than last year's. So we're not -- it's not like we're cutting below what we spent last year, but we are taking 2.3 percent of this year's budget and cutting it.

Now, that's $85 billion out of a $3.554 trillion budget. That is a -- that's $35,540 billions of, and we're trying to cut $85 billion out. If we can't do that, we're in real trouble and -- because we have a huge spending problem in this country and we've got to start somewhere.

Now, look, I don't want to underestimate how difficult this is in the middle of a fiscal year. It's one thing to do it before you begin the fiscal year, say, Next year, we're going to -- we were planning to spend, you know, $3.5 trillion and we're going to spend $85 trillion or $85 billion less.

It's another thing to be in the middle of the year and cut it. But we better start cutting from the future growth of spending, restrain it, rein it in. Otherwise, these deficits are going to suffocate our country. They're already harming our growth. I love it -- the president and his people say we need to keep spending, we need to keep running up these deficits, otherwise the economy's going to be in difficulty.

Well, look, we've tried that for four years and our economy has not been on fire. It's the worst recovery in the recorded history of the United States. And our job creation -- we're still not back to the point that we were in 2007, when the country went into a recession. We have not been able to spend our way to prosperity, and the idea that we can continue that -- that philosophy is just mistaken.

VAN SUSTEREN: You know, I don't have any sympathy when you say it's harder to do in the middle of the year because the first thing I think of is, Tough. They're the ones who got themselves into this. This is the one -- they're the ones who got into this idea. It's the president's suggestion, although, you know, I know there's been some question he's tried to duck that, but his suggestion. The Republicans went along with it, and it's only because it's the middle of the year because they kept pushing it off. So I sort of feel like, Tough.

ROVE: Right.

VAN SUSTEREN: They asked for the job. They paid for it. They have profoundly failed us in resolving this. Don't have any sympathy that it's hard.

ROVE: You can't resolve this without presidential leadership, and the president for 18 months has not been interested in a solution. Now, let's -- let's -- let's do, though, put this in a little bit of a context. We're talking about cutting $85 billion. That's 2.3 percent of the federal budget.

Now, the problem is this. The sequester as designed by the White House said we're not going to take anything out of mandatory spending, which is 65 percent of the budget. We're going to cut everything that we're going to cut out of the discretionary part of the budget, which is 35 percent of the budget. So the 2.3 is not out of the whole, it's out of a part, which means that, in reality, we're cutting discretionary spending by about 7 percent.

Now, we're doing it in the last seven months of the fiscal year, and we're doing it across the board, a haircut. The sequester mandates that it be across the board. So important things are cut just as deeply as unimportant things.

And look, this problem's going to get worse unless we figure out a way to do this smarter because over the next decade, the CBO forecasts that discretionary spending will shrink to 29 percent of the budget and mandatory will grown to 71. And the sequester is the first step. This $85 billion is the first of $1.2 trillion in cuts that are supposed to take place over the next decade, and we're increasingly going to be cutting them out of the part of the budget that is voted upon every year, the discretionary part, and not out of the mandatory, which is what's been put on autopilot, and you know, that's just, making it more and more difficult for us to cut.

There's a way out of this, and the Republicans in the House, in my opinion, ought to take the lead on it. I want you to think about this. This has got a cut -- across-the-board cut. Everything gets cut -- 7 percent of discretionary spending gets cut, 2.3 percent of the overall budget. We need flexibility so that the individual cabinet members say, I'm going to prioritize the important things and cut less out of them, and the unimportant things cut more.

And that way, we're going to be able to do this in a more smart fashion than we're now doing with this across-the-board haircut in everything. It's one thing to say we're going to cut everything by 1 percent, but if you're talking about 7 percent, then you start cutting -- you know, you cut things that are really important and cut an equal amount of things that are less important.

VAN SUSTEREN: Is there anything to prevent the politicians here in Washington from agreeing on some resolution, sequestration, some spending cut, whatever formula they come up with, and then they come up to the microphones and they say, you know, This is great. We have, you know, bipartisan, or whatever, and put whatever people behind them to sort of impress us that this is (INAUDIBLE) and then next year, turn around and increase spending anyway?

ROVE: Well, the actions of one Congress can't bind a future Congress, and that's why we have to have people in the House and Senate who are committed to the long-term reform of our budget process because, yes, you're right. We cut $85 billion this year. There's no guarantee that people in future years are going to follow through with it, especially as long as this president is in office.

Remember, this was his idea. He thought it was a great idea. And now he says it's brutal and arbitrary and wants it revoked. He once threatened to veto any bill that came to him that tried to stop or overturn the sequester.

But we -- and this is the irony. Republicans would be smart to give the president the flexibility so that it's not an across-the-board haircut. Each department has to cut an amount equal to 2.3 percent of the overall budget or 7 percent roughly of discretionary income, has to cut that total amount, but it has flexibility to pick and choose among the programs inside that department, some of which will be cut more and some that'll be cut less.

VAN SUSTEREN: If the Republicans don't agree to that flexibility, is it then the Republicans are then going to be, you know, and probably justifiably so, just being -- gaming the president? I mean -- I mean, if that's not working towards the solution -- if flexibility to sort of pick and choose what makes sense to cut and what doesn't -- if the Republicans deny the president who won the election that ability to do that, is that just about winning?

ROVE: No. First of all, the president has not asked for it. The president's not asked for it. I think it's smart for the Republicans to give it to him so he can no longer blame them. If he says, We're going to cut meat inspectors, they say, Look, you can find something better at the Department of Agriculture to cut than meat inspectors, can't you, Mr. President?

Air traffic controllers are going to be cut. Mr. President, at the Department of Transportation, can't you find something that's not as important that you could really cut so you keep those important personnel? Oh, you're going to cut border patrol people? Isn't there something at Homeland Security that's less important, something that you can hold off a little while?

So look, the Republicans would be smart to give him flexibility. It would give him more power. He's going to gore a couple of the oxen that Republicans like. But the Republicans also have another important tool. I was e-mailing back and forth today with a really smart Republican strategist who said oversight. The House Republicans could call up any cabinet secretary who says, OK, well, I'm going to take -- I'm going to close the Washington Monument, rather than, you know, cutting off the GSA conferences with people -- and remember the famous photographs of the GSA administrator...

VAN SUSTEREN: Boy, I sure do!

ROVE: ... in a bathtub with his glass of red wine. Yes, who's going to -- that's going to -- we all need therapy in order to overcome that image. But you know, that's the kind of thing that oversight will allow the Republicans in the House to say, Wait a minute, Mr. President. You threatened that ag -- that ag meat inspectors would be taken away. Well, here are some really -- you know, some programs at the Agriculture Department that are not as important.

Or, you know, let me give you the classic example. We have this program that takes -- you know, gives money to people for free cell phones, and already we've gotten government reports from the agencies and from the agency itself saying that it's rife with fraud and abuse. Well, maybe we ought to be cutting that program before we cut other things that are more important.

So the Republicans have a one-two punch. Give the president flexibility so the cabinet secretaries can pick and choose between accounts, take more out of the less important accounts, keep the important accounts, the important parts of the budget intact, and then have oversight so they can blow the whistle on any, you know, phony money kind of president PR gimmicks that these cabinet officials are undertaking in order to try and blame them for it.

VAN SUSTEREN: And Karl -- and I -- I just want to point out that picture, if you take a good look at it -- that guy in the bathtub, he didn't even have two matching wine glasses. So we paid all that money, he couldn't even get two matching wine glasses.

But anyway, I'm taking the last word on that one. Thank you, Karl.

ROVE: Thank you, Greta.