This is a rush transcript from "Special Report With Bret Baier," September 1, 2010. This copy may not be in its final form and may be updated.


PRESIDENT BARACK OBAMA: Unfortunately, over the la st decade, we have not done what is necessary to shore up the foundations of our own prosperity. We spent a trillion dollars at war, often financed from borrowing overseas. This in turn has shortchanged investment in our own people and contributed to record deficits.

For too long, we have put off tough decisions on everything from our manufacturing base, to our energy policy to education reform.


BRET BAIER, HOST: Well, in his Oval Office speech last night, President Obama seemed to blame the Iraq war for at least some of the nation's economic problems. On that score, the Congressional Budget Office came out with a bar graph in which it shows the spending, the deficit, the cost. The cost there was less than 15 percent of the total deficit spending during the Bush years from the Iraq war according to the CBO.

What about the president's economic portion of the speech? Let's bring in our panel, Bill Kristol, editor of The Weekly Standard, A.B. Stoddard, associate editor of The Hill, and syndicated columnist Charles Krauthammer.


BILL KRISTOL, EDITOR, THE WEEKLY STANDARD: Well, it's obviously nonsense. The Iraq war, as you said, the chart show the deficits were declining while we were fighting the Iraq war and they've gone up in the last two years as the president unwound the number of troops in Iraq and the amount spent on the stimulus and on health care swamps, the amount being spent each year on the Iraq war.

It's as if they were sitting around the White House and said, Mr. President we're get criticized, we've got to focus on the economy, everybody is worried about the economy -- you're doing an Iraq speech. OK, we'll shoehorn in a couple paragraphs on the economy. I don't want to be too contentious, it's a foreign policy speech, but maybe we can tie it into Iraq somehow. We spent a lot of money on that. It's really -- I was more favorably disposed to the speech than a lot of my friends, but those two paragraphs were just silly.

BAIER: On the foreign policy side. But on the economy side, A.B., did you feel it had a little disjointedness to it?

A.B. STODDARD, ASSOCIATE EDITOR, THE HILL: It was a difficult pivot for him to make. And I agree with Bill. They elevated -- this you have been given at the VFW. They elevated it by making it the second Oval Office address, so therefore he's trying to command the attention of the American public about the end of combat operations in Iraq and then he knows he is under all this pressure to address the economy which is the issue that Americans are focused on, and they are not focused on our combat troops leaving Iraq.

So I think it was sort of this effort to try and blend them together. This description -- the sound bite you played of him saying it's nearly $1 trillion, most borrowed from overseas, it could be description of the stimulus package as well. It was hard for him to make the case that by leaving Iraq -- there is no coalition government formed. Things are so unstable there still. He wasn't able to tell us we are safer now as we leave, it is secure enough for the end of combat operations to become a pay for as we pay down the deficit. He couldn't really thread that needle, I thought.

BAIER: And Charles, then do you extrapolate that we need to get out of Afghanistan to make the economy better as well?

CHARLES KRAUTHAMMER, SYNDICATED COLUMNIST: Well that seemed to be part of the subtle implication of that. He did say he stopped the deadline he gave of July, 2011, which you thought he might have at least undone in a way because of such criticisms he's got that it's encouraging the enemy in Afghanistan. That was said by the commandant of the Marine Corps incidentally. But he didn't.

So he's preparing for a withdrawal. It will be a gradual one, but a withdrawal. And if he is attacked then, part of the defense will be and part of the way he'll placate the left is to say it's going to helps us economically. It shows what he really cares about in the end. Here's a president giving the first address on foreign affairs, on the wars, the first ever on Iraq from the Oval Office, and you would have expected him after discussing Iraq and Afghanistan to discuss the larger issues. Beyond Pakistan there is the rise of Al Qaeda in Yemen, the al-Shabaab in Somalia who are near seizing control of that country. You have a civil war about to reemerge in southern Sudan. There is this whole arc of the world which is really in flames. And he has now declared an end to the global War on Terror, that doesn't exist anymore, so what is his vision? Where is this all about?

So that's where you expect he would go at the end of the speech. Instead he does this absurd pivot into economics and the threat supposedly is the cost. And the CBO shows by the numbers it has on the cost of the whole Iraqi operation, it is half of what the budget deficit alone will be in this year.

BAIER: Bill, on the economy, is the president do you think going to come forward with specific ideas to -- different ideas to try to help the economy?

KRISTOL: He said he wants to extend the tax cuts for 95 percent of the people -- they have no piece of legislation. It's really unbelievable. They've let this go until Labor Day of 2010 and there is no piece of actual legislation embodying the president's tax proposal.

I think they've got to try to do something. I think there will be bad unemployment numbers Friday. I think -- the White House might try to go for broke and do something bold, you know, a payroll tax holiday or something and suddenly spring it in September. But I think it looks like such desperation that it will be hard to do something. And I think Republicans now, feeling what they should do and I think they might do, they should say, look, let's extend all the tax cuts. We want to work with you, Mr. President and with you, Speaker Pelosi. Let's do it and give the business community and citizens stability and predictability for the next two years. Please, please, pass them out. We could do this when we have a majority in January, which Republicans I think will have, but let's do it now. And I think that would put the president, and a lot of Democratic members in Congress would be hard pressed to say oh, no, let's not provide predictability for two years.

BAIER: A.B., there is not a budget right now. We are still operating on a continuing resolution.

STODDARD: As for the tax debate, it really is interesting. It continues to divide the Democrats and there is increasing pressure from those most vulnerable facing reelection in tough campaigns about the prospect of trying to move with a one-year extension of all, and then let's take this on in 2011 about sun-setting the top two brackets. There is increasing pressure from the middle up to the leadership about that.

BAIER: Although every time anyone talks about, Vice President Biden, any of -- Treasury Secretary Geithner they always talk about --

STODDARD: The administration is on one page, which is we're sun- setting the top brackets. But you talk to members of Congress and I think they would like a one-year pass.

KRISTOL: And would President Obama veto? Think about that. What if the Republicans can get 60 Democrats in the House and 10 in the Senate and pass this. Is the president of the United States going to veto in a recession the extension of all the current tax rates for the next year?

KRAUTHAMMER: I think he will because that's all he's got. He can't argue his economic policies have succeeded. That's not anything anybody would believe. What the idea is class warfare. The Republicans are in favor of the rich and we are in favor of the middle class. That's all they have and they're going to stick to it.

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