This is a rush transcript from "Special Report," January 25, 2011. This copy may not be in its final form and may be updated.


REP. JOHN BOEHNER, R-OHIO, HOUSE SPEAKER: I'm hopeful that the president is listening to the American people, and I'm hopeful that the word ‘investment’ really isn't more stimulus spending and a bigger government here in Washington.

SEN. MITCH MCCONNELL, R-KY., SENATE MINORITY LEADER: In promoting the failed stimulus, the president referred to that, too, as an investment in our nation's future.

AUSTAN GOOLSBEE, COUNCIL OF ECONOMIC ADVISERS CHAIRMAN: At the end of the speech there’s not going to be any question about the president's commitment to seriously address the fiscal challenges that face this country. And if one side is saying we should cut those things that are investments to help make us more competitive, I think that's confused. I think that's pulling the engine out of the airplane just as the airplane is taking off.


BRET BAIER, HOST OF “SPECIAL REPORT”: A lot of talk about investments on both sides. As we get ready for the State of the Union address tonight. You may have noticed slight change in the outfit. That is the result of the Green Bay Packers beating my Atlanta Falcons and a bet I lost to Steve Hayes that the next time we’d appear on the set together I would wear this tie.

Let's bring in our panel, Steve Hayes, senior writer for The Weekly Standard and Green Bay Packer fan, A.B. Stoddard, associate editor of The Hill, and syndicated columnist Charles Krauthammer. Steve, let's start with you.

STEVE HAYES, SENIOR WRITER, THE WEEKLY STANDARD: This is as good as you've ever looked, Bret, I have to say.


It was very interesting to me to hear Austan Goolsbee at the end of his comments saying, "I think that's pulling the engine out of the airplane just as the airplane is taking off ," talking about cuts in spending, cuts in government spending.

And I think, you know, what we're likely to see tonight is a very clear choice, that voters have had in 2012 between the Republicans who want to cut those things and the president who by and large aside from a couple things I would call gimmicky does not.

But it's really interesting to hear Austan Goolsbee talk about it in those terms saying that's the engine of the U.S. economy? This kind of government spending if you carry his analogy out is the engine of the U.S. economy. I fundamentally disagree with that. I think many Americans do.  And I expect that Paul Ryan in talking about this tonight will frame that as the choice.

BAIER: A.B., I went to the White House today and had lunch with the president. It was off the record but we can characterize kind of the overall tone. And it was a lot of what we're hearing from the excerpts, a lot of optimism, a lot of winning the future, a lot of competing and trying to stir up the American people to win on the global stage.

Is that going to work do you think if it's not the traditional programmatic, "here’s what I'm going to do" policy-wise?

A.B. STODDARD, ASSOCIATE EDITOR, THE HILL: I think after his speech in Tucson he is hoping that a sweeping broad philosophical and very optimistic and empathetic discussion of the economy will help him with independent voters.

He doesn’t have to be specific his budget doesn’t come out till mid-February. Tonight is his last opportunity to build on the momentum that he’s been afforded and enjoying by the lame-duck session and the speech in Tucson.  This is the last grand stage for him before there’s a real showdown on spending cuts. How specific is he going to be, is my big question.  He doesn't have to be, but if he is not he will miss an opportunity. If he starts about the investment and education and energy and infrastructure and he talks about the earmark ban and a budget freeze, without really being specific, I think people are going to tune it out.

This is his moment to build his credibility, on the issue of deficit reduction. If he lets it go, then it's back on the Republicans playing field and they’re in a huge fight. I think that this is a very important moment to be detailed.

BAIER: Charles?

CHARLES KRAUTHAMMER, SYNDICATED COLUMNIST: I think the question is how serious is he going to be. He has made all the gestures, all the moves since Election Day to recognize what the verdict of the country was.  It was restraining order on the expansion of government and on spending.

So he hires a chief of staff who’s a banker and he meets with the Chamber of Commerce, he appoints the right of the people, a centrist, he has bromance with the head of GE, shows how much pro-business he is.  But these are all gestures, and the question is, how serious is he?

He doesn't have to be that specific. However, if he says that he’s going to introduce a five-year freeze on domestic spending, which is non --

BAIER: Which is expected.

KRAUTHAMMER: -- non-national security and not entitlement, what he essentially is saying we are going to keep spending at a level one quarter over 20 percent higher than it was before he came in office. So it's already at a very high level and we're going to keep it at that level. The freeze, itself, is only going to apply to a seventh of the budget. It is utterly insignificant.

If that’s all he's offering, I think it's going to be obvious he is not serious about this, that he is repositioning himself as a centrist be he's not serious about cuts. And of course he has the mantra that all Democrats have. Remember, they never spend anything. It's all investing.

This is quite obvious he wants to keep spending on stuff he wants, and I think it's rather audacious. You read an excerpt to Eric Cantor about a Sputnik moment, how wonderful it was we invested all this in space and science. It's ironic that a president who himself has just ended the manned space program, essentially put it on mothballs, is the guy who touts it as a great example of American energy and government action.

BAIER: Speaking of energy, Steve, Carol Browner, the White House energy advisor announcing today she is planning to leave her position.  Some are saying that this perhaps signals that climate change legislation, obviously we talked about it here on the panel, is not going far. Does it say anything else?

HAYES: No, I don't think it does. It may mean climate change is being set aside. But look, that's precisely the context for the Sputnik moment comment. The president used the language before in a speech he gave in North Carolina at Forsyth Tech. Steven Chu, the secretary of energy used that language as well and talked about the kind of "investments," quote/unquote, that the U.S. government needs to make to play catch-up with China, who is racing ahead is their theory.

I think Charles is right. If this is a Sputnik moment, if he is characterizing it that way, what it means, we should be clear about what it means, is a significant increase in spending.

BAIER: Last word here. Michele Bachmann delivering this Tea Party caucus response in addition to the Republican response from Paul Ryan. A.B., is this a problem for Republicans? Eric Cantor, the majority leader didn't suggest so, but is it?

STODDARD: She's really grating on them, but they're not going to come on your show and tell you that. Obviously the Tea Party would like its own platform. They want to be known as a separate party at this point, really, until the rubber meets the road and there is a real spending battle and a resolution of this.

Right now, they are keeping their distance, they're keeping their independence, and they're giving leadership a really hard time. The leadership is towing a tough road trying to balance this. I think they’re smart not to say anything publicly, but I can tell you privately they're not pleased.

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