Treasury Sec. Jack Lew on the how the budget battle will impact the debt ceiling; Reps. King, Graves debate where the gov't is headed

This is a rush transcript from "Fox News Sunday," October 6, 2013. This copy may not be in its final form and may be updated.

CHRIS WALLACE, HOST: Hello again from FOX News in Washington. We start with those U.S. commando raids in North Africa. Navy SEALs hit a seaside villa in Somalia, going after a leader of Al-Shabaab, the group behind that recent mall massacre in Nairobi.

Meanwhile in Libya, American forces ended a 15 year manhunt for an Al Qaeda operative linked to the bombings of U.S. embassies back in 1998. National security correspondent Jennifer Griffin has more on these daring operations.


JENNIFER GRIFFIN, FOX NEWS NATIONAL SECURITY CORRESPONDENT: Chris, the Libyan government was not told about U.S. plans to carry out this commando raid and now they're demanding answers. U.S. officials confirm the president signed off on these two operations at the end of September. Navy SEALs came ashore in Somalia in the predawn hours Saturday to target a villa south of Mogadishu, where top members of the AlQaeda affiliate Al-Shabaab were gathered.

Shortly thereafter in the capital of Libya, elite Special Operations forces surrounded the vehicle of this man, Abu Anas al-Libi, a top Al-Qaeda operative who has been indicted in the Southern Districts of New York, wanted by the U.S. government for more than a decade for his role in the East Africa bombings.

His family says al-Libi had just pulled up to his house after morning prayers when he was nabbed by the U.S. forces.

Pentagon press secretary George Little issued the following statement, quote, "As the result of a U.S. counterterrorism operation, Abu Anas al-Libi is currently lawfully detained by the U.S. military in a secure location outside of Libya. It is not clear whether the target of the SEAL operation in Somalia, the mastermind of the Kenyan mall attack, was killed. A firefight broke out; at least one Somali was killed, but the SEALs could not retrieve the body to make a positive identification. Libi is alleged to have done surveillance on the embassies before the bombing. He hid in Britain and Iran after 1998 and returned to Libya in 2011 during the uprising against Moammar Gadhafi.

An FBI hostage rescue team with prosecutorial authorities was embedded with the U.S. forces who carried out this attack. U.S. officials confirm al-Libi will be tried in the United States and will not be sent to Guantanamo Bay, Chris.

WALLACE: Jennifer, thank you.

Now to the partial government shutdown.

Day six and the clock is ticking closer toward another deadline. Congress must raise the debt ceiling in less than two weeks or for the first time in our history, the country goes into default.

Joining me now, the Secretary of the Treasury, Jack Lew.

And Mr. Secretary, welcome back to “Fox News Sunday.”

JACK LEW, SECRETARY OF THE TREASURY: Good to be with you, Chris.

WALLACE: This week, both you and the president seemed to be trying to panic the markets about both raising the debt ceiling and the government shutdown, saying that they should be more concerned. Here's the president.


PRESIDENT BARACK OBAMA: I think this time's different. I think they should be concerned. When you have a situation in which a faction is willing potentially to default on U.S. government obligations, then we are in trouble.


WALLACE: But so far, the markets are shrugging it off. The Dow Jones dropped just 1.2 percent this week. Nasdaq was actually up more than half a point.

Aren't your efforts failing to try to use the markets to put pressure on Republicans to cave?

LEW: You know, Chris, it's my job to try to make sure we strengthen the economy, and I spend every day trying to do that. That's why it's so important for Congress to act to open up the government, to make sure we can pay our bills.

There's no question but that if we were to have the unthinkable happen and have the United States default, it would cause real problems. The only question is how serious the problems would be, and there's a kind of range of how bad the consequences are.

But why would anyone want to do that to the American economy at a time when the American people are showing their resilience, recovering from the worst recession since the Great Depression?

You know, and this is not a new issue.

I'm going to quote to you from something President Reagan wrote to Congress or said to the country back in 1983, "The full consequences of a default or even the serious prospect of a default by the United States are impossible to predict and awesome to contemplate.”

"Denigration of the full faith and credit of the United States would have substantial effects on the domestic financial markets and on the value of the dollar in exchange markets."

That was President Reagan. Congress needs to act.


WALLACE: Well, let me -- let me -- let me quote you to you, because the Treasury Department issued a report late this week that said a possible default would be, quote, "catastrophic."

Here's what your own Treasury Department report said, "Credit markets could freeze. The value of the dollar could plummet. U.S. interest rates could skyrocket, and there might be a financial crisis and recession that could echo the events of 2008 or worse."

On the other hand, the Fed continues to pump money into the economy.

Given that, what's the likelihood that a default would be catastrophic?

LEW: Look, Chris, the good news is, there's a majority in Congress that's ready to do the right thing, that's ready to vote to reopen the government --

WALLACE: I'm asking an economic question, not a political question.

LEW: -- and that's ready to avoid the kind of unthinkable problems that happen if the United States for the first time since 1789 willfully defaults on the good full faith and credit of the United States. I don't think there are serious people who think that the consequence is minimal.

I mean, people say you can pay some bills and not other bills, but let me ask you a question, Chris.

If you pay one bill -- let's just say you pay interest and principal on debt. I'm not saying that you can.

What happens if you don't pay millions of people on Social Security?

What happens if you don't pay hospitals and health care providers across the country?

The consequences are immediate, and they're very bad. Congress needs to act.

WALLACE: I asked you an economic question.

Would it be catastrophic?

LEW: Chris, I am telling you that I know the direction. I know the direction is bad. There are a range of how bad. It is not responsible, it is irresponsible, and it is reckless to take that chance, which is why Congress needs to act.

WALLACE: All right.


LEW: It's only Congress that can act to raise the debt limit. It's Congress' authority and responsibility.

WALLACE: All right. You say the consequences would be bad. It would be irresponsible not to act. Despite these stakes, the president -- the president refuses to negotiate, saying what Republicans are demanding has never happened before. Take a look.

OBAMA: You have never seen in the history of the United States the debt ceiling or the threat of not raising the debt ceiling being used to extort a president or a governing party and trying to force issues that have nothing to do with the budget and have nothing to do with the debt.


WALLACE: But, Mr. Secretary, that is just not true. Congress has voted to raise the debt ceiling 53 times since 1978. More than half -- 27 times -- it's been linked to something else. And among those items it's been linked to: campaign finance reform, school prayer and busing and a nuclear freeze.

What's unprecedented is not Congress tying strings. What's unprecedented is the president refusing to negotiate.

LEW: You know, Chris, let me be clear. The president has always been looking for a way to negotiate, find that reasonable middle ground with a bipartisan, you know, group of members and senators to do the right thing for the American people. He was -- he has -- he put out a budget that actually took an enormous step to do that.

So the president is open to negotiation. The question about the debt limit is different.

And, frankly, I think your history is wrong. If you look at the cases where the debt limit was involved, there were many other things attached to the debt limit, but the question of threatening to cause a default of the United States, not until 2011 did it become a positive agenda.

WALLACE: Mr. Secretary, your history -- with all due respect, your history is wrong.

In 1973, Democrats in the Senate, including Ted Kennedy and Walter Mondale, wanted to attach campaign finance reform under Richard Nixon during Watergate to raising the debt limit. They -- it ended up being a filibuster.

Republicans had to filibuster to defeat it and take it out. This has happened over and over again, and presidents have negotiated, and this president -- what's unprecedented is he's refusing to negotiate.

LEW: You know, Chris, I lived through the budget debates of the 1980s, the 1990s, the early 2000s. I know that there were many occasions when the debt limit was tacked on to other things. I actually remember when the debt limit was used as a deadline, an action-forcing event.

It was different in 2011. In 2011, you had 50 to 100 members of the House who said, if we don't get our way, we would rather see the default of the United States, and that was different. It was different. And I think what the president is saying is, Congress has to do its job. It has to open the government. It has to make it so we could pay our bills.

WALLACE: But you're moving the goal line.

LEW: And then we need to sit down and we need to negotiate.

WALLACE: John Boehner said he doesn't want to default, sir.

So why not sit down with him and talk?

You're the one who's saying that they're ready to take the economy down. They say they don't want to take the economy down. You agree. In 1997, you were deputy director of OMB when the debt limit was tied to measures to balance the budget. If it was good enough for Bill Clinton to sit down and negotiate with the House speaker, why isn't it good enough...

LEW: So --

WALLACE: -- for Barack Obama?

LEW: -- Chris, in 1997, I sat through every meeting in the balanced budget negotiations. No one once raised the issue of threatening default...

WALLACE: Neither--

WALLACE: -- neither is John Boehner.

LEW: -- now, John Boehner -- I know John Boehner. We have a good relationship. I've talked to John Boehner. I know he doesn't want to default. He also didn't want to shut the government down.

And here we are with a government shutdown.

There's a majority in Congress that would vote to do the right thing. The majority needs to be given a chance to work its will.

WALLACE: All right, let me just -- look, first of all, John Boehner is not threatening to default. He's saying he doesn't want to default.

Republicans are talking right now about a down payment on the debt. They're willing to ease the sequester, automatic spending cuts, in return for long-term spending cuts through entitlement reform.

Will the president negotiate on that as part of a deal to deal with the debt limit and the shutdown?

LEW: Chris, we need to separate the issues. Congress --


LEW: -- Congress needs to open the government --

WALLACE: Why (INAUDIBLE) separated for --

LEW: Congress needs to --

WALLACE: -- years.

LEW: -- open the government. We're now going into the second week of a government shutdown. It's causing real damage to the American people. Every day, people who thought it was OK to shut the government down, every day they're discovering why it's a problem. You can't fix this by discovering a problem here and there.

Congress needs to do its job.

WALLACE: So you -- you're saying --

LEW: It's Congress' job --

WALLACE: -- refused to --

LEW: -- sole...

WALLACE: -- negotiate over a --

LEW: -- solely Congress'

WALLACE: -- debt solution?

LEW: Chris, it's solely Congress's job to pass a budget. They have to pass a budget. They have...

WALLACE: I just want to ask a question.

LEW: If Congress

WALLACE: Are you refusing

LEW: -- needs to

WALLACE: -- are you saying the president

LEW: -- make it possible for

WALLACE: -- is refusing to negotiate

LEW: -- us to pay our bills.

WALLACE: -- sir?

LEW: I'm saying the president wants to negotiate. He wants to negotiate...


WALLACE: Negotiate on the debt limit?

LEW: And -- and -- Chris, we need -- Congress needs to do its job and we then need to negotiate. The president has taken many steps over the last several years to show his willingness to negotiate. He's done it with Democrats saying he's too eager to negotiate.

Now, Republicans have not come forward and made comparable movement. If we were in a place a year ago or two years ago, where everything was on the table, where entitlement reform and tax reform were equally on the table as part of a solution, we wouldn't be where we are now. We came forward; we were willing to do entitlement reform.


LEW: -- the Republicans

WALLACE: Since you say

LEW: -- need to come forward, as well.

WALLACE: -- that the -- the possible results could be so, in the words of your report, catastrophic, will the president accept a short-term extension to fund the government and raise the debt limit so you can have talks about the debt?

LEW: Look, Congress will have to make a decision what they do. I can tell you that the American economy would be well-served by getting some stability and some certainty. These manufactured crises that -- and this brinksmanship over and over again, is bad for the economy. It's hurt -- you know, we -- we're the world leader. We are the strongest, deepest economy in the world. Our currency is the world's reserve currency. Since 1789, people have depended on the United States for that kind of stability.

Congress should act now. I think they should act to take this burden off of the economy. It's a self-inflicted wound.

But we'll have to see what Congress does.

WALLACE: I -- I just want to say, I take away from this conversation that even though Republicans are willing to talk about a debt deal or a short-term extension, the president -- it's the president who is putting his -- digging his feet into the ground and saying no negotiations?

LEW: Chris, that is not what I said.

What I said is Congress

WALLACE: Well then just

LEW: -- Congress

WALLACE: -- well, what are you saying?

LEW: Congress needs...

WALLACE: -- want unconditional

LEW: Congress needs

WALLACE: -- or nothing else, sir?

LEW: -- to do its job. You know, we've just spent the last several months with Congress creating this ridiculous choice where either you repeal the Affordable Care Act or you shut down the government or default on the United States. That is not the way we should do business. We need to -- they need to do their job. They need to open the government. They need to fund our ability to pay our bills. These are old bills, Chris. These aren't new bills.

WALLACE: I -- I understand that, sir.

LEW: And then we -- we're open to negotiation. The president has been, is and will always be open to reasonable discussions.

WALLACE: I want to ask you about ObamaCare. You brought it up, that's what -- what a lot of this is about. The public exchanges in ObamaCare opened this week. And I think it's fair to say that the government Web site was a mess. In fact -- and you can look at it right here -- the page to sign up to enroll for ObamaCare has been taken down for repairs during off-peak hours this weekend.

A question, sir. You have had three years to prepare for this week.

If I already had doubts -- somebody already had doubts about the government's ability to oversee a sixth of the economy, shouldn't this just add to my doubts?

LEW: You know, Chris, the -- I actually think that is not what's happened this week. What happened this week is we saw seven million people rush to go onto the Web page to find out what are their choices in this new marketplace to buy affordable health care.

WALLACE: How many actually signed up, sir?

LEW: You know, they have six months to sign up. This is a big decision. We never expected --

WALLACE: How many signed up?

LEW: -- I -- I don't have the exact number. But the question isn't --

WALLACE: Do you have any number --

LEW: The question --

WALLACE: -- because the government has refused to --

LEW: -- it's the wrong question.

WALLACE: -- tell us how many.

LEW: It's the wrong question.

WALLACE: No, it isn't.


WALLACE: In the end, looking --

LEW: The right question –

WALLACE: -- I can look and I may have no interest and, in fact --

WALLACE: -- I'm not going to need ObamaCare --

LEW: We know --

WALLACE: -- the question is, how many --

LEW: Chris, we –

WALLACE: -- people have --

LEW: -- we know --

WALLACE: -- actually signed up?

LEW: We know that people take time to make important decisions like this. They go on. They compare their options. The fact that so many millions of people rushed to get information is a very good sign.

And then to your question about the Web site, I don't know about you, but, um, you know, I sign on and I get updates on my software and I often get corrections that I have to re, uh, re-update my -- my software from major companies.

It is not unique that when you have a very large new software program come out, that people work to clean it up. I usually wait until it's .3 or .4 before I sign up.

So many millions of people rushed to get in, because that shows how much interest there is in -- in getting health care.

WALLACE: I'm going to ask one last time, because, forgive me, sir, you haven't answered it.

Do you not know how many people have signed up?

Which should seem to indicate another major software glitch?

Or is it that the number is embarrassingly small?

LEW: Chris, I -- our metric for this week was could people get online, get the information they need...

WALLACE: The answer is they couldn't --

LEW: -- to make an enforce -- and informed decision. They have been getting that information. We are confident that they're going to make the decision as we expected. They have six months to make the decision.

WALLACE: So you don't -- the -- do they -- do you not know or is it that the number is small?

LEW: Well, it's obviously not my primary area of responsibility, so my knowing or not knowing is not -- is not going to be indicative...

WALLACE: But then nobody --

WALLACE: -- in the government --

LEW: -- the -- the important issue -- the important issue here is that millions of Americans want to get affordable health care. They came online. They're getting the information.

And do you know what they're learning?

They're learning they can get affordable health care, they can save money, they can avoid having a situation where they have pre-existing conditions but no health care or they have children who have no health care.

This is a very important development.

WALLACE: They just can't sign up for it at this point?

LEW: Well, I think they are going to be signing up.

LEW: They have six months to sign up.

WALLACE: But technically, they can't.

LEW: Well --

WALLACE: Secretary Lew, thank you.

Thanks for coming in today.

We'll stay on top of all this, the shutdown, the default and the problems with ObamaCare.

Thank you very much, sir.

LEW: Great to be with you, Chris.

WALLACE: With no negotiations at this point between the White House and Congressional Republicans, where is the government headed?

George Will joins our Sunday group for the first time. And we'll ask them, next.



WALLACE: Will the president negotiate on that as part of a deal to deal with the debt limit and the shutdown?

LEW: Chris, we need to separate the issues. Congress --


LEW: Congress --


LEW: -- needs to open the government...

WALLACE: -- for years.

LEW: -- Congress needs to open the government. We're now going through the second week of a government shutdown. It's causing real damage to the American people.


WALLACE: Treasury Secretary Jack Lew earlier this morning on the president's refusal to negotiate with Republicans.

And it's time now for our Sunday group.

Joining us for the first time, syndicated columnist and Pulitzer Prize winner, George Will. He's now a Fox News contributor -- George, we're honored to have you on the panel.



Glad to be here.

WALLACE: We're not quite as honored but very excited to have Kirsten Powers of The Daily Beast Web site; Republican political guru, Karl Rove; and Democratic strategist, Joe Trippi.

I'm just kidding.

It's --

KIRSTEN POWERS, THE DAILY BEAST: You never miss a chance.


WALLACE: We never miss a chance.



POWERS: It was not just you personally, it was all three of us.


UNIDENTIFIED MALE:  No, it was all three --


UNIDENTIFIED MALE:  It was all three of us.

WALLACE: George, as we pointed out with Secretary Lew, that this claim that presidents have never negotiated a Congress over raising the -- the debt limit is nonsense. It's happened over and over again, as we said, 27 times since 1979.

Do you think that the president can stick to this refusal to negotiate or does that, at some point, become politically unsustainable?

WILL: Well, here's the position he would be sticking to. Default would catastrophic, worldwide depression, political chaos, locusts, plagues, etc.

But, attached to the debt ceiling increase, construction of the Keystone Pipeline, it's better to have locusts, plagues, crisis and war. I mean it's an untenable position.

But the very -- the -- what makes the debt ceiling this recurring crisis so wholesome is it forces us to confront the gap between revenues and outlays and every you need to know about what's wrong with contemporary Washington was in your interview, when the Secretary said we won't prioritize a Hyatt -- a hardware store in Kankakee, Illinois prioritizes between what to do with its first revenues that come in.

We have 10 times more revenues than required to service our debt. That can be done. There's no need to default.

Therefore, the administration's position and a default will be our choice.

WALLACE: Kirsten, one senior administration official infamously said to "The Wall Street Journal" on Friday, quote, "We're winning, so we don't care how long this goes on."

The president quickly took that back, as he was going off for lunch, impromptu at a sandwich shop near the White House.

But do Democrats run the risk of overplaying their hand if they continue to refuse to negotiate or if they continue to refuse to pass these bills that the House is passing, piecemeal measures to fund NIH or Head Start?

POWERS: Well, I mean I think that they -- that they continue allow -- they're -- if they -- if they allow this to happen, if they do this piecemeal bills, for example, I think the fear is that this will keep on happening and that's why the president has taken such a hard line.

And the refusal to negotiate, we need to remember what he's refusing to negotiate over. He's refusing to negotiate over defunding ObamaCare. This is a pretty significant thing.

And so you can go through your history of the different things that people have done, you know, Democrats holding up, you know, Reagan's budget over defense spending. It's not quite the same thing as actually defunding an entire program, an entire signature program of the president. So --

WALLACE: But they've backed off and now they're --

POWERS: -- I think that he...

WALLACE: -- talking about just repealing the --

POWERS: Well, repealing a part right here --

WALLACE: -- the tax on medical devices.

POWERS: Well, I mean maybe. Look, maybe the president will -- would come around on something like that. If they had done that in the first place, they probably could have gotten a deal. I think it's gotten to this point now where, you know, they -- they took it all the way up to the brink on, you know, default.

Yes, I think -- and I've said this before -- I think the president's position is a negotiating position. It's where he's starting. And perhaps there will be something where they can reach some sort of agreement. He does not want us to default. There's -- there's no question.

And I don't think, frankly, that most Republican leaders want us to default, either.

WALLACE: Karl, we're six days into this shutdown.

Where do you asses both sides are now and what are the end games for both sides?

How does this get settled?

KARL ROVE, FORMER BUSH WHITE HOUSE ADVISER: Well, both sides are suffering in the public estimation. If Washington is not working, the ultimate symbol of Washington is the president of the United States. Now, at the end of the day, Republicans, as they did in the '95 shutdown, will -- will get more of the blame than the -- than the White House.

But let's not kid ourselves, the president is doing himself some damage. Republicans are doing themselves some damage.

The stubborn obstructionism of the president, though, has a purpose, which is to try and get the Congress to agree to the Senate Democrats' spending number, which is $91 billion bigger than the House, and bust the sequester and it ends the 2011 spending agreement.

And the other part of this is that he is attempting to put the responsibility for raising the debt ceiling and, in fact, naming the amount of the debt ceiling on the Congress and not on himself.

The president, through this whole thing, has said, we need to raise the debt ceiling but he never once has said how much it ought to be raised. Every other president has said here's how much I'd like to raise it for and here's how long this will be.

And the reason is, budget experts inside the Congress and outside tell me that in order to get the debt -- the government past the 2014 election; it's going to be a trillion dollar debt ceiling increase. He doesn't want to be the guy who goes out and says, well, after all this happy talk about the spending and deficits and how everything is hunky-dory, that he needs $1 trillion more in authority to get himself through the next year.

WALLACE: It is interesting to note that back in 2008, Candidate Obama said that George W. Bush's $9 trillion debt as unpatriotic. If they raise the debt $1 trillion, it will be to $17.7 trillion, which I guess would be treasonous.

ROVE: Well, and also, he said it was a -- any president who asks for an increase in the debt ceiling is demonstrating a failure of leadership. That's what he said in 2006 when he was attempting to use the debt ceiling to, in essence, have the government default because he didn't want to raise the debt ceiling.

So you'd think that a guy who had made such a gross error in 2006 would have a little bit of humility now and sit down and negotiate. That's why I think this stubborn obstructionism has a purpose in it. And the purpose is get more money and break the Republicans.

WALLACE: So, Joe, is all the stubborn obstructionism on the Democratic side?

Oh, yes. Yes, right.


JOE TRIPPI, DEMOCRATIC STRATEGIST: Look, the whole problem with this is that -- is, I think, goes back to the 41 votes to repeal ObamaCare. The Republicans have had an obsession with repealing it, or at least an element within the Republican Party. We're now seeing that that's how the shutdown crisis starts, with them wanting to shut down -- an end to funding -- defund ObamaCare, repeal it, get rid of it.

It's -- that's why it's hard for them now to say they weren't responsible for shutting down the government. And the real problem as we get closer to a default is regardless of what negotiations there are or are not, it's going to be -- it -- in the wake of all that momentum on ObamaCare and Republicans trying to stop it, they could turn into the grand double O party -- obstruction and obsession with ObamaCare. And that leads to fiscal default.


TRIPPI: That is a big problem.

WALLACE: It sounds like a bumper sticker.

George, I want to bring you in. We've got a little time left.

There -- there has been talk that the president and Senate Democrats, that their goal is to break the Republican Party, to exploit this divide within the Republicans and to make them -- to stop them, basically, to school them not to use these fiscal deadlines as leverage.

Is that a sensible strategy?

WILL: It's not sensible because they misunderstand the evidence right before their eyes of what's happening with the evolving Republican Party. There are two groups desperate to end the shutdown and to break the sequester.

One is big business and the other is the American military.

Previously, the Republican Party was thought to be congruent with big business and the military. Not anymore.

WALLACE: All right.


WALLACE: We have to take a break here, but you bring us to the division within the Republican Party as the -- and we'll pick up with this discussion a little bit later.

First, as the shutdown drags on, there's a growing split inside the GOP.

What effect will that have on the Washington showdown?

We'll talk with two leading Republicans on opposite sides of the divide.



REP. PETER KING, R-N.Y.: -- almost open -- after quite a while. You know, why don't we go get them as well? That has been a real issue I know by a number of us in the Congress, why we don't we go after those who've carried out Benghazi. But Libya is a great capture, and I give our Navy SEALs and our Special Forces, and FBI operatives tremendous credit. But again, I hope he's interrogated for a long time before he's -- anyway.

WALLACE: All right, let's turn, if we can, to the other subject in hand, which, of course, is the government shutdown and possible default. Congressman King, let me start with you. You said some pretty rough things about your fellow Republicans who've been pushing this default. You've called them yahoos, Ted Cruz crazies, even terrorists. With Tom Graves, sitting here, it sounds like it's more than just a disagreement over policy.

KING: No, I was -- I have great regard for Tom Graves. And I was talking primarily about Ted Cruz here. Who basically was saying that if we defunded ObamaCare, he can manage to both keep the government open and defund ObamaCare. The fact is, it was done in the House, and the government is now closed, and ObamaCare is going forward. This was a strategy that never could have worked. It was almost sort of nullification to say we're going to shut down the government if you don't defund a law that we don't like. I mean, if we want to defund something, we should repeal it. And we do it by the same way that the president got to sign it. Elect Republicans in both Houses of Congress, repeal it, and then having Republican president sign it. This was a strategy doomed to failure. And Ted Cruz has now walked away from it. Now we're saying we should negotiate on the debt limit, which is what we should have been doing for the last month, that's where the real negotiation is, not on this strategy that was doomed to failure.

WALLACE: Let me bring Congressman Graves into this. You have been one of the people leading the charge to defund or delay ObamaCare. First, how do you feel, either --whether it was from Congressman King or Congressman Nunes, being called a terrorist, a lemming wearing a suicide band. And what is it that so-called moderates like King and Nunes don't get?

REP. TOM GRAVES, R-GA.: Well, first, let me just say, we as a conference, we're united. We have been working together now over the last couple of weeks. There are maybe disagreements on strategy or tactics, but we're fully united behind opening the government up as quickly as we can, as well, as providing fairness to all of Americans as it relays to ObamaCare. And we have been pretty reasonable as we work through this process for the reference to a full delay or a full repeal. That was something that was for, a full defund, likewise a one-year delay of the entire program, so now we're just saying Mr. President, can we not just have a one year delay of individual mandate and provide the same protection to all of Americans that you provided to big business --

WALLACE: So, but you say you're united, there are fellow Republicans who have called you terrorists.

GRAVES: That as a relation to tactics and strategy. What I'm saying, we're united behind this protecting Americans from the harmful effects of ObamaCare and keeping the government open. And the votes of the last week demonstrate that clearly.

WALLACE: Let's talk about how flexible you are. Because there is now some talk and the House Republican leaders to pivot away from ObamaCare. Not to make demands about ObamaCare, but instead to focus on the debt and entitlement reform and long-term spending cuts. Would you accept a deal on that? To reopen the government and to raise the debt limit if it did not include any changes to ObamaCare?

GRAVES: I don't suspect that is something the conference would embrace right now? We have had a tremendous fight over keeping the government open and protecting Americans from ObamaCare. But I'm here to say I'm open to a lot of different ideas. I'm willing to put it all on the table. Let's have a conversation about tax reform, about debt limit, about funding the government, about ObamaCare. But in order to do that, Harry Reid has to send some Democrats to meet with us. He can't be scared to send some Democrats to meet with Republicans to have this conversation.

WALLACE: You just heard Ted -- rather Jack Lew, Secretary Lew, the secretary of the Treasury talking about how catastrophic it would be if we were to default. Are you prepared -- are you prepared to refuse to raise the debt limit unless you get what you want on ObamaCare?

GRAVES: There is no reason to default. In fact, the Republicans don't want to default. We've passed the bill to full faith and credit--

WALLACE: Forgive me, what I did with Secretary Lew, you're not answering my question.

GRAVES: But I'm just saying, we're -- there is no reason to default. The president is the only one demanding default right now. He could sign the Full Faith and Credit Act that we've passed out of the House, that would prioritize the spending. And I think you pointed out rightly that there is a lot of revenue coming into the government. They forget to tell you about the $200 billion collected every month by the IRS, taxes are still being collected, there is still plenty of revenue.

WALLACE: But would you refuse to raise the debt limit over ObamaCare?

GRAVES: Right now we're talking about ObamaCare as it relates to opening the government and the continuing resolution. The fact is we have in relation 95 percent of all this we agree on. Let's get that taken care of and then let's talk about the other five percent.

WALLACE: Congressman King, Democrats are now pushing a discharge petition to take this idea of a clean CR out of committee to bring it to the House floor for a vote. There are 200 Democrats who have agreed to sign that, in fact, they are going to need at least 17 Republicans in the House. Will you support a discharge petition?

KING: No. Let me first tell you, I don't consider myself a moderate. I'm a Reagan conservative. Having said that no, I would not. And by the way, one thing that Tom Graves and I can agree on is that the Democrats in my mind are also being irresponsible here. The president of the United States has an obligation to get involved. He is the head of the Democratic Party, he's doing a very good job at that, but he's also the head of the entire country. And I can't picture Harry Truman or Lyndon Johnson or Bill Clinton or John Kennedy standing on the sidelines while this was going on. He has an obligation to get involved. Whether he calls it negotiations, whatever else he wants to call it, the fact is if this situation is as serious as he say it is, I think it is as far as a default on the debt, then he has an absolute obligation as president of the United States to get involved. I think it's irresponsible--


WALLACE: Sir, if you could answer my direct question, though, why won't you sign a discharge petition?

KING: It's not going to go anywhere. And also the Democrats are not bargaining in good faith. You have to get -- there is no way in the world you're going to get 25 Republicans to go on that, and having said that, I wouldn't go out because they're, as I said, not bargaining in good faith here right now.

I'm committed to making this work. That's why I have been against this government shutdown from the start. Where I am disagreeing with Tom is we are the ones who did shut the government down. Charles Krauthammer called it the suicide caucus. I mean, "Wall Street Journal" said we're kamikazes. Don't take the dramatic step of shutting down the government unless you have a real strategy, and a chance of working -- this never had a chance to work. And now we're almost pushing ObamaCare to the side, and we're talking about other issues, and people are still out of work, and the government is still shut down.

WALLACE: Congressman Graves, suicide caucus, kamikazes?

GRAVES: Still, as he indicated we're unified behind the fairness --

WALLACE: But when you talking that --

GRAVES: And keeping the government open--


WALLACE: I know, but the strategy at this point that it shut down the government.

GRAVES: But the reality is, we are where we are right now, and as a conference we have never been more united than what we've seen particularly last Friday. We know that the president and his what -- his chief aides in the administration are saying let it go. They don't care how long it goes on, because they winning. But this is not about who's going to win or lose, because it's the American people ultimately that are losing if we don't reach some sort of agreement. You've got to have Democrats willing to have a conversation.

WALLACE: Congressman Graves, one final area I want to get into with you. If House Speaker Boehner agrees to either reopen the government or to raise the debt ceiling without a deal that limits ObamaCare, would you vote to remove him as speaker?

GRAVES: There is no vote to remove him as speaker. I mean the next vote for speaker is in January, I guess, of what--

WALLACE: You could give a vote to remove him. You can have a vote on the House floor.

GRAVES: What we're looking for right now, I mean this is clear, Chris. We want to open up all the government that we can, but we want to provide fairness for the American people and that is providing them the same protection that the president has provided big business, insurance companies and members of Congress. There should be no special treatment. And all of Americans deserve that same --

WALLACE: And briefly, Congressman King, less than a minute -- Congressman Graves is not saying it, but there certainly are some members who have threatened, if Boehner gives on this, he is gone.

KING: I'm absolutely committed to John Boehner, I think he is an outstanding speaker, doing the best he can under a terrible situation. He warned us a month ago that if we shut down the government because of defunding ObamaCare, it was a no-win policy. John had to do it ultimately to keep the party together, so we can have a chance of getting into the negotiations, but I'm actually committed to John Boehner. He has been the speaker, he's done an outstanding job. Considering what he's up against, he really has different factions within that conference, and nobody can do a better job than he could. As tough as it is, maybe people have different opinions here and there. Obviously, I've had some disagreements, but never, ever his ability to be the best speaker we have.

WALLACE: Congressmen King, Congressman Graves, thank you both, thanks for coming in, and we will be following the action in the House, gentlemen.

KING: Thank you very much.

GRAVES: Thank you.

WALLACE: When we return, our panel is back to talk about what happens after this deadlock is resolved. Will Congress be able to do any work next year? And what about the 2014 elections?



UNIDENTIFIED FEMALE: We have seen 100 percent increase in prosecution.

WALLACE: The jet core includes defense lawyers and judges who report to her and prosecutors who work for their commander.

UNIDENTIFIED FEMALE: Over 100 percent increase in convictions.

WALLACE: Stay tuned. Our panel will be right back.




NANCY PELOSI, D-CALIF., HOUSE MINORITY LEADER: This crisis could be over in hours if the speaker and the Republicans would just take yes for an answer instead of continuing to be the party of no.

JOHN CORNYN, R-TX, SENATE MINORITY WHIP: Apparently they think the government shutdown is good politics.

And there are in no hurry to break the stalemate.


WALLACE: Well, leaders of both parties this week continuing to talk at each other while they fail to talk with each other. And we're back now with the panel. Relations between the two parties, I think, it's fair to say, were pretty miserable before the standoff, after this, and all of the splits we're seeing in the parties, between the parties, George, is any business get done over the next year?

GEORGE WILL, FOX NEWS CONTRIBUTOR: I don't see immigration getting done. It's become axiomatic that you can't get anything done in America during an election year or the year before an election year, which is all years taken together. But at the split in the Republican Party, I mean what else is new? They split in 1912 between Taft, President Taft and Teddy Roosevelt, they split in '64 between the Goldwater rights and the Rockefellers. It's a big country, and the Republicans now have what liberals are supposed to admire, which is diversity, except liberals don't want diversity in thought, and that's what the Republicans now have and it makes them rather interesting.   WALLACE: Kirsten, do you agree with George? Nothing out on immigration reform, nothing on any of the president's initiatives?

POWERS: Yes, unless you can get a new Congress. So, you're talking on --



WALLACE: We're not going to have an election this November.

POWERS: Until the next year. No, I don't -- I can't imagine anything getting done. And I think what we -- and I do think we -- you're talking -- we've talked a lot about is the president trying to destroy the Republican Party? And I think, yes, because he has to. Because he -- because nothing will get done unless there is a new Congress and he needs to divide them. It's just basic math that in order for him to get his agenda done.

WALLACE: But you said destroy the party, because I can see brother Karl here champing at the bit. What do you mean?

POWERS: Well, as he's trying to divide them, trying to stoke the division in, you know, is -- that having -- is the shutdown bad for the Republicans? So far, yes, it is. Is that good for Obama? Yes, it is. This is just the reality. I don't, you know, and I don't know that necessarily there are other politicians who are above this. It has been cast that Obama is somehow, especially nefarious because he would want to deal with the political reality that he can't get anything done with this Congress. What else was he -- what else is he expected to do?


ROVE: There is a majority of Republicans in the Congress, in the U.S. House of Representatives. So if the president's goal, and I agree is to destroy the Republicans, he's not going to succeed, so why try it. I think it's because he's a community organizer, he went back to check rules for radicals, one who acts decisively only in the conviction that all of the angels are on one side and all the devils are on the other. And the president has spent the last several months going out and saying the Republicans are devils. Monday he could have had an agreement to resolve the shutdown. He could have said you know what, the House Republicans fund it at current level and delay the individual mandate for a year, just like I delayed the corporate mandate and require Congress to withdraw my waiver for Congress and make them live under ObamaCare.

WALLACE: I mean you can argue policy. Do you really think that was unreasonable for him with his signature legislative accomplishment to say I'm not going to delay the individual mandate?

ROVE: If you don't have the individual mandate, you don't have the money to pay everything else.   WALLACE: If you don't delay -- if you delay the corporate mandate, the employer mandate that requires that every employer as January 1 of next year provides insurance or pay a $2,000 a person fine. The CBO says that's $12 billion. The individual mandate is roughly $15 billion. So if it is incredibly damaging to ObamaCare to delay the individual mandate, what about delaying it for corporate? Now, why did he do the corporate mandate? Because he didn't want in an election year a lot of companies doing what they are going to do --

POWERS: They didn't know how to --


POWERS: It was very complicated.

ROVE: What they were going to do is that companies were going to dump coverage. And to house people in the exchanges.  And he didn't want that happening in an election year. But yes, it was entirely reasonable. Now, if he didn't want --

WALLACE: Wait, wait, wait, now --

ROVE: If he didn't want that -- if he didn't want that, he could have said, I'll take the withdrawal of my waiver on Congress. But, you know, don't give me that one. And he could have used his opponent --

WALLACE: All right. All right.

TRIPPI: I just agree with something that Kirsten said the president doesn't need to try to destroy the Republican Party because it's doing it to itself. And so, you just stand back and let them do it. But there is one point I want to make. Look, on Obamacare, this started in 1945 with Truman wanting national health insurance. The Democratic Party took almost 70 years to put it in play.

WALLACE: A Democrat, it's not a Republican.

TRIPPI: -- to put it in place --

UNIDENTIFIED MALE: Conservative Democrats.

TRIPPI: For Obama to get it there. And it was stopped with Clinton. We saw that. We finally get it there, he is not going to think that Democrats after 70 years of fighting for this are going to give up and somehow negotiate it away. That's what's crazy.


WALLACE: There is panel, there is contacts for it.


WALLACE: You have to elbow your way in.

WILL: Well, for all of the talk about hurting Republicans, I'll tell you six Republicans who benefit from a current unpleasantness in Washington.

They live in Trenton, New Jersey, Baton Rouge, Louisiana, Austin, Texas, Madison, Wisconsin, Indianapolis, Indiana and Columbus, Ohio. They are Republican Governors Christie, Jindal, Perry, Scott Walker, Mike Pence and John Casey. Because they are going to -- all of them contemplate running for president I suspect, and they're going to have one great argument on their side -- I wasn't part of that.


ROVE: The guy living in Lansing, Michigan, Rick Snyder, is thinking about it, and Jeb Bush --

WALLACE: OK, let's talk about 2014, I thought that was crazy, not 2016. Karl, there has been some commentary that the president you say destroyed the party, but he wants to position Republicans so that Democrats can take back the House in 2014, so that he ends his presidency with two years of Democratic control, the way he began it, with two years of Democratic control. Is that a sensible strategy?

ROVE: It has no chance of happening. The president's job approval is below 50 percent. The second midterm election, second term midterm is always bad for the White House party. He has two chances of taking the House, slim and none, and slim is putting the saddle on his horse to ride out of town. It ain't going to happen. In fact, I would suspect that given the dynamics, there are less than 65 seats that most of these prognosticators think are in play. Charlie Cook, for example, says there's only 10 seats that are really, truly up for grabs. One of them is a Republican seat, and nine are Democrat seats.

WALLACE: You like numbers, let's put up some numbers on the screen. Of the 232 Republicans in the House, 215 come from districts that Mitt Romney carried last November, which you would figure are pretty safe for the GOP. In the Senate, Republicans need to pick up a net of six seats of the 35 seats up next year. Democrats now hold 20, Republicans 15.

Joe, which party has a better chance of gaining control of both houses of Congress? Republicans taking the Senate or Democrats taking the House?

TRIPPI: If the Republicans are right about ObamaCare, and they just pass the CR and let it go, and everything that they say about it is true, then the Democrats are never going to win another election. So they will have the Senate, the House, and in 2006, they will get the presidency.

The problem is if in doing this, they crash the economy and we default, even if they are right, they are going to lose the House in 2014 and may not get the presidency for some time. That's what the stakes really are right now.

WALLACE: George, let me ask you about that. If ObamaCare is going to be such a disaster, why not let it play out?

WILL: I agree with Joe, half of what Joe is saying.


WILL: Let the American people experience ObamaCare. If it is as bad as conservatives rightly say it is, they will recoil from it. So that is -- that should be the Republican strategy.

WALLACE: The flip side is the Democrats say Republicans are scared of people seeing what ObamaCare is, because they'll love it so much, they'll be Democrats.

WILL: Well, their theory is that they'll become addicted as a heroin drip to the subsidies. I think they are underestimating the American people. I think what the Republicans have to have confidence in is the ability of the American people to say, we generally vote for divided government, we want divided government, and I think you will have a united Congress against a divided --


WALLACE: All right. Thank you, panel. We'll see you next week. We'll continue this discussion on panel plus. Up next, our power player of the week.


WALLACE: As long as the Army has been around, there has been someone to advise commanders on military law. Now, for the first time in the Army's 236-year history, it's a woman. Here is our power player of the week.


LT. GEN. FLORA DARPINO: If a soldier is going to go to Airborne School, can he go? If the soldier is in Airborne School, do we have to return?

WALLACE: Lieutenant General Flora Darpino was hard at work this week dealing with the government shutdown. Last month, she was named Judge Advocate General of the Army, making her the service's top lawyer.

Is it fair to call the JAG Corps a giant law firm?

DARPINO: We'd like to say we are the largest law firm in the world.

WALLACE: She has 10,000 military and civilian lawyers and paralegals serving under her. Advising soldiers on everything from personal matters to big issues.

DARPINO: We do everything from keeping the lights on to making sure that soldiers who should be prosecuted are prosecuted and defended appropriately.   
WALLACE: The JAG Corps includes defense lawyers and judges who report to her, and prosecutors who work for their commanders. Of course the big issue now is sexual assaults. Darpino thinks those reports, 26,000 service members were targets of sexual assault last year, are exaggerated.

But since the Army put a new focus on prosecutions in 2009, she says things are getting better.

DARPINO: We have seen a 100 percent increase in prosecutions and over 100 percent increase in discharges for soldiers who were convicted.

WALLACE: As for efforts in Congress to change the law so prosecutors, not commanders, decide whether to bring a case to trial?

DARPINO: This is Army business, not lawyer business. This really is about discipline. And so to take away the ability of the commander to try cases, degrades the commander's ability to discipline the force.

WALLACE: Darpino joined the JAG Corps in 1987, along with her husband Chris, also an Army lawyer.

DARPINO: We came in on the exact same day, and we were promoted to every rank on the exact same day. Until I was selected for Brigadier General.

WALLACE: And when she became Judge Advocate General that meant she would be her husband's boss.

DARPINO: The plan was that this summer, we were both going to retire. And so his theory on that was, I'm off plan. And so he is now a retired Army officer and still a soldier for life.

WALLACE: But Darpino was excited about putting off her retirement.

DARPINO: I get to work with commanders who are committed to doing the honorable thing. Where they listen to advice based upon moral and ethical and the right thing to do. And I think that's pretty neat, being a lawyer.


WALLACE: Darpino served two tours in Iraq as the staff judge advocate, which means she was the senior legal adviser to then commander of U.S. forces, General Ray Odierno. And that's it for today. Have a great week, and we'll see you next “Fox News Sunday.”

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