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STATE OF THE UNION WITH JOHN KING

Interview With Governors Granholm, Pawlenty; Interview With Senators Ben Nelson, Susan Collins

Aired February 1, 2009 - 09:00   ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.


JOHN KING, HOST: I'm John King. This is "State of the Union." Unemployment spikes as massive layoffs spread across the country. I'll talk to governors of two hard-hit states, Democrat Jennifer Granholm of Michigan, and Republican Tim Pawlenty of Minnesota.

The House passed the $800 billion stimulus bill this week without a single Republican vote. Opponents say it won't help rescue the economy. As the debate heads to the Senate this week, we'll hear from two senators who say this isn't the change President Obama promised. Democrat Ben Nelson of Nebraska and Republican Susan Collins of Michigan.

And we'll keep our promise to listen to you. I'll go to a factory floor in Peoria, Illinois, where word of thousands of job cuts came just this past week. That's all ahead in this hour of "State of the Union."

Good morning and welcome to our "State of the Union" report this Sunday, the 1st of February.

Before we get to our guests, a quick glance at what we will do this Sunday and every Sunday morning on this program. Here in our 9:00 a.m. Eastern hour, as you heard, interviews with the top newsmakers in the United States and around the world. At 10:00 a.m., Howie Kurtz and "Reliable Sources" takes a critical look at the media. At 11:00 a.m. Eastern, members of the best political team on television, CNN's reporters and analysts, will discuss and debate the day's major stories, including highlights of the Sunday morning talk shows. And at noon eastern, the only live Sunday interview program in America, senators and other newsmakers get the last word.

So let's get started.

Just getting by got a whole harder for a lot of people this past week. Job cuts in the last seven days alone topped 140,000. I spent much of this week talking to Midwestern families tossed from jobs they thought were as secure as they come. Their stories are all too familiar to two Midwestern governors, who are closely watching Washington's debate about how to help.

Joining us now, Democratic Governor Jennifer Granholm of Michigan, Republican Governor Tim Pawlenty of Minnesota. Thank you both for joining us this morning.

I want to get right to the big question. Citizens of your state and across the country are asking as they watch this debate, Governors, in Washington, about spending more than $800 billion, is it worth it? Is it simply worth it? Will all this money actually create jobs? And I ask because there are widely varying estimates about what it will do. The Congressional Budget Office says maybe it will create as few as 1.2 million jobs. President Obama, as you know, says, no, it will create 4.1 million jobs.

I want to start with you, Governor Granholm. Your state has been hit so hard. How many jobs will this package create in the state of Michigan?

GRANHOLM: Well, Mark Zandi from Moody's says it would create over 150,000 jobs for us. And believe me, we are all about jobs. Those 140,000 jobs that were lost this past week, we see the impact of this every day, and I'm speaking not just for Michigan, but for governors across the country.

We need help. We need it now. And it's not about budgets, it's about creating jobs in our states.

KING: Governor Pawlenty, how many jobs in the state of Minnesota?

PAWLENTY: Well, just on the construction aspect of it alone, one of our local congressmen said on highways and roads and bridges, it would be 12,000 jobs.

But John, one thing to keep in mind, if you take $813 billion, which is the amount the House authorized and divide that by 4 million jobs, which President Obama said is going to save or create, that's about $205,000 a job. So people are also concerned about, is this package focused right? Is it targeted right? Is it the best bang for the buck in terms of how the money is being spent?

KING: As you make that point, Governor, then why not take a principled stand and say I don't want the money, I think it's wasteful spending?

PAWLENTY: Well, in Minnesota's case, we have a situation where we pay into the federal government way more than we take out, so we are not going to be bashful about getting our fair share. But we do lend voice to how we think this money could be most effectively spent. We hope that those voices will be heard as the debate continues.

KING: You governors have to make the tough choices. You don't get to run up a big deficit, like they do here in Washington. And I don't know if you can see here now, but as we continue the discussion, I want to show some front-page newspapers out in your states. The "Sunday Free Press" says "Governor to push tuition freeze." A tough choice for you, Governor Granholm, I'm sure, at a time of economic -- to push for other cuts in government. In the state, we also have -- and excuse me, these are a little big -- here in the "Duluth News Tribune," "You can survive the awful economy: 10 ideas for weathering the storm."

These are the tough choices families are facing. I want to ask you another question being asked around the country. Do you think Washington is making the right tough choices? Because in this $800 billion plan, the Senate plan, you have things like this -- $400 million to fight HIV and sexually transmitted diseases; $650 million for digital TV converter boxes; $345 million for Agriculture Department computers; $75 million for anti-smoking campaigns; and $150 million for honeybee farmers.

They all may be worthy goals, but Governor Granholm, this is a new Democratic administration and a new Democratic Congress. Can you say with a straight face that this is emergency spending, that's necessary, immediately, to create jobs?

GRANHOLM: I'll tell you what is necessary immediately is investment in infrastructure jobs, and jobs that we can put people to work in right now.

I know that's going to change as it goes through the Senate. I agree that we've got to focus this stimulus package on creating jobs for our people right now, and on making sure that people are not hurt in the meantime. Meaning that you want to make sure that people who go on unemployment have those benefits. You want to make sure that you're not slashing people off of health care, children, pregnant women, senior citizens, people with disabilities. Those are the things that this package is targeted on. A third toward making sure people are not being hurt; a third toward investing in job creation; and a third towards tax cuts. That to me is a good balance.

KING: I want to be clear, Governor. As a Democrat and governor of a leading industrial state, those proposals that I mentioned at the top, you don't think they belong in a bill designated as emergency economic rescue? That if the Democrats want to pass those things, why not put them in a separate bill and stand up and say we think these are the things George W. Bush ignored for eight years, we think they are important, but we're going to be honest and say this is spending, this is spending we think is necessary. This other bill is stimulus, we think it will create jobs. Why not do it that way?

GRANHOLM: Let me be very clear. I want to see every dollar put into job creation. If things are in there that are not related to job creation, it should perhaps be in other bills. But this bill should be related to job creation and helping people get through this economic crisis.

KING: Governor Pawlenty, do you have any confidence that Washington will make the tough choices and make the distinctions? Your Democratic colleague says she believes it's necessary, but do you think in Washington, a town now with a new Democratic president and Democratic majorities in both the House and the Senate, will they make those choices?

PAWLENTY: Let me say first, John, it appears, you know, that the country obviously is in crisis. We're going to need to do some things to get this economy going. In terms of making tough choices, if you look at the federal government, they are going deeper and deeper into debt. They don't appear at all interested in the past or now to be worried about balancing the budget in the context of this crisis. They say, well, we'll pay for it down the road, kicking the can down the road. That hasn't worked, whether you have a Republican or a Democratic Congress. So they just continue to do everything without regard to focus, without regard to prioritization, without regard to balancing the budget.

I hope when the Senate gets their bill, they will weed out some of those things that you've just described and focus on those things that will be more directly and more quickly related to creating jobs. That would be the tax cuts, that would be the infrastructure and some other things. In the House bill, it appears that those got diminished.

KING: Let me ask you before we need to get to a break -- we will have more of our discussion -- but Governor Pawlenty, your state sadly became in some ways a poster child for the need for infrastructure back in 2007, when you had this very sad and tragic bridge collapse. There will be infrastructure money in this legislation. I want to ask you from the sense of what you have on the shelf -- first Governor Pawlenty, then Governor Granholm -- how fast can you spend that money? How quickly will it create good construction and manufacturing jobs?

PAWLENTY: With respect to the 35W bridge, of course the National Transportation Safety Board said that fell because of a design flaw from the 1960s, just so we have that clear. But beyond that, there are a number of projects that can be done relatively quickly. But even if you move with dispatch, it's not like you can turn on the switch overnight. There is going to take some leg time to get those projects up and running. And if you look at the House bill, there have been estimates that as much as a half or more of the bill really won't even kick in, not just on the infrastructure side but more broadly, really won't even kick in for more than a year from now.

KING: Governor Granholm, Governor Pawlenty talks about the delays in kicking it in. Give some advice to the president and to everybody here in Washington about leaving it so that you can spend that money immediately, no strings and the money fast into the system.

GRANHOLM: We can spend this money immediately. We have about $900 million in the budget bill that was passed by the House that would go to infrastructure in Michigan, $900 million. However, I have $20 billion worth of requests for shovel-ready projects that could have dirt flying within 180 days.

Now, will it happen overnight? No. Because, us in the north, the ground is still frozen, but it certainly would happen within 180 days. People could be put to work, and these are projects that will help -- have long-term impact on the nation's economy by having a good infrastructure.

KING: Governors, please stay with us. More of our discussion just ahead. And later, we'll also hear from two senators, one Democrat and one Republican, who think the current White House stimulus plan is off track, too loaded, as the governors just noted, with non-essential spending. In the 10:00 hour, Howie Kurtz talks to sports report Larry Fitzgerald -- how about this story -- about covering his son, the star wide receiver for the Arizona Cardinals in tonight's Super Bowl. At 11:00, our Sunday conversation and "State of the Union" debate with the best political team on television. And at noon Eastern, what's needed right now, tax cuts or spending? Steve Forbes and Robert Reich face off on how best to give the economy a desperately needed kick-start. Our "State of the Union" report is just getting started.

(COMMERCIAL BREAK)

KING: You're watching "State of the Union." I'm John King. Let's continue now with two governors on the front lines of our economic crisis. Republican Tim Pawlenty of Minnesota, Democrat Jennifer Granholm of Michigan.

And Governors, as we continue the discussion, I want our viewers to understand the problems you face. Michigan's unemployment rate, 10.6 percent, and Governor Granholm, you're running a $1.5 billion deficit. Over here, Governor Pawlenty, your unemployment a little bit better, but that's still tough, 6.9 percent, and a nearly $5 billion deficit.

In the context of this as the stimulus money is spent, Governors, I want to ask you about a proposal in both the House and the Senate to say "buy American." That if all this money is going to be spent, it should be spent on American products and American goods.

You are both along our northern border. Some worry if those provisions are included, it could set off a trade war, not necessarily with Canada, but maybe with China and others.

Governor Pawlenty, to you first. Is that a good idea? Should Washington be regulating buy American?

PAWLENTY: Well, we have to be a little careful, because the bulk of the world's economic activity is not taking place in the United States of America. So if the rest of the world takes a similar approach and we are going to eliminate our ability or diminish our ability to market our products and services to much bigger places and faster growing places, that's not a good plan for the future.

That being said, there are some appropriate times and places if the price is the same or competitive where some preference might be appropriate. But when you're a small state like Minnesota or you're a big export state like Michigan or much of the Upper Midwest and you start saying we're going to look inward, we're only going to buy and sell to ourselves, when 80 percent of the economic activity is elsewhere in the globe, that's not a great strategy for the future.

KING: Do you agree with that, Governor Granholm?

GRANHOLM: Well, I think wherever you can, you should have a preference for American-made products, American workers. That is what the stimulus is all about. If there is a way to have American products do all the retrofitting of those homes and businesses for energy efficiency, you better believe we should have a preference for that. If we believe that it's important to put people to work in America, well, let's have that money stimulating our economy, rather than stimulating the economies of other countries. KING: The stimulus debate is the big economic debate in Washington, but the new president has taken some other steps related to the economy that affect especially your state, Governor Granholm. He signed an executive order this past week that allows states to increase emission standards on automobiles if they so choose. The president says it will help the automakers, not hurt them. Let's listen.

(BEGIN VIDEO CLIP)

BARACK OBAMA, PRESIDENT OF THE UNITED STATES: Our goal is not to further burden an already struggling industry. It is to help America's automakers prepare for the future.

(END VIDEO CLIP)

KING: But many in your state, Governor Granholm, disagree, including Republican Congressman Mike Rogers, who said this announcement will "destroy jobs in Michigan. With the stroke of a pen, the president has unleashed a hornet's nest of new local, state and federal regulations on the auto industry. To pile on new regulations," Congressman Rogers says, "without any substantive help is a cruel blow to Michigan workers and their families." Who's right, the president or Congressman Rogers?

GRANHOLM: Well, first of all, I think the president asked the EPA to take a look at these regulations.

But here is -- you can imagine that there would be 50 states regulating the building of automobiles in 50 different ways, that doesn't make sense. If we, as a nation, have a national commitment to reducing emissions, we should have one strong national standard. Otherwise, what amount of certainty can the auto industry have that they're building a car that's going to end up in California or Texas or somewhere else? You have to have strong national standards, a strong national commitment, and that way the auto industry can gauge their building of platforms toward that national standard.

The president himself has said that he wanted to streamline the production of these automobiles, that you want to have multiple vehicles perhaps on the same platform, by one particular auto company. Well, you can't do that if you've got engines that have to be built to the tune of 50 different states. So let's have a tough standard, but a national standard.

KING: You are both chief executives, meaning you both have cabinets. You need to pick appointees to fill out your administration and carry on the day-to-day business of state government. President Obama promised to change things in Washington. He promised an honest and open administration. Governor Pawlenty, to you first. We have a Treasury secretary who had to pay more than $30,000 in back taxes. We now learned over the weekend that the president's choice for health and human secretary, Tom Daschle, had to pay more than $100,000 in back taxes, in part for not reporting as income a free limousine, a driver and a chauffeur that he received.

Would you put in powerful positions, critical positions in your state, Governor Pawlenty, people with those problems?

PAWLENTY: Well, I'm not sure that President Obama knew about those problems before he nominated those individuals. You'd hope he did through the vetting process, and if he didn't, perhaps there was a flaw in that process.

Those are concerning developments. They are serious indications that, of course, with the case of Secretary Geithner, he has already been approved. I don't know that President Obama, had he known the full extent of those problems or concerns, would have nominated those individuals. I guess the question would be, did he know that? Did he know they had those problems before he nominated them? If he did, I would have suggested perhaps they would have picked somebody else would have been a better course.

KING: Governor Granholm, as Governor Pawlenty noted, Secretary Geithner has been confirmed. Senator Daschle is still awaiting confirmation. Should that disqualify him, in your view? And again, you're a governor of a blue-collar state. People here -- here is a guy who left the Senate. He had a free driver, he had a free sedan driving him around, and he didn't think, even though he was on the Finance Committee once and he should know the tax laws, didn't think he had to declare that as income?

GRANHOLM: It's my understanding that he just learned that he had to pay this in August of this year, and he had intended to pay it in this income tax filing that he would make. He alerted the president, as did Geithner, and they fixed the problem, so they are going to fix the problem.

So the bottom line is, are you picking people who are going to carry out your policy in a way that helps people on the ground in states? Senator Daschle has a long commitment to universal access to affordable health care. That's part of the Obama administration's plan. He is going to be a phenomenal head of Health and Human Services. And I'm excited that he's there for us.

I can tell you, in Michigan, that's one of the reasons why our auto industry has been uncompetitive, is because we don't have a uniquely American solution to the cost of health care that's burdening businesses, not just the auto industry across this country, as they compete with businesses in countries who provide health care. So the fact that Senator Daschle, hopefully secretary-to-be Daschle, has that commitment and has an expertise in it, and he has fixed these problems that have come up, yes, in the vetting and he alerted people in advance. Let's get on with it, let's do what is important to people, which is health care.

KING: Democrat Jennifer Granholm of Michigan. Republican Tim Pawlenty of Minnesota. Governors, thank you both for joining us this morning, and we wish you the best of luck dealing with these tough times in the weeks and months ahead. Thank you so much.

And getting help to the states as the governors need depends of course on Congress coming together on a plan. Success could come down to a few key senators, and two critical voices are with us this morning. Republican Susan Collins and Democrat Ben Nelson on where they say the president is wrong, and how they would fix it, straight ahead on "State of the Union."

(COMMERCIAL BREAK)

KING: I'm John King and this is "State of the Union." Here are some stories breaking this Sunday morning.

Iceland is about to make history. CNN has learned the country will swear in the country's first female prime minister. Johanna Sigurdardottir will also be the world's first openly gay leader. Her first order of business: tackling the country's economic crisis.

The ballot-counting has begun in Iraq after yesterday's provincial elections. Preliminary results indicate more than half of the country's eligible voters hit the polls. Official results, though, won't be known for several weeks.

No deadly violence was reported, despite threats from Al Qaida.

In Kentucky, hundreds of thousands of people are without power, nearly a week after an ice storm hit the state. National Guard troops are preparing to go door-to-door to check on residents.

One of the biggest layoffs was announced this week, Caterpillar. And I sat down with some of those folks, just as it happened. That and more, ahead on "State of the Union."

President Obama's promise of a new bipartisan spirit is in question, even before his tenure hits the two-week mark. His economic rescue plan didn't get a single Republican vote in the House, and without big changes, a partisan divide looms in this week's Senate, as well.

Our guests are determined to change that and say the president would be wise to listen. Democratic Senator Ben Nelson of Nebraska, Republican Senator Susan Collins of Maine, let me start with a very basic question.

And to you, first, Senator Nelson, since you're the Democrat. You have you a new Democratic president, promised to do things differently in Washington. You don't like this proposal. What's wrong with it?

NELSON: Well, I like parts of it, that that is based on infrastructure, which I think truly will create jobs. That's a robust job creation and protection piece of legislation.

But there's an awful lot of spending in it that I think is questionable, marginally supportive and stimulative for jobs: $1.1 billion dollars for comparative research on physician practices, which are better for treatment purposes -- $1.1 billion; $75 million for cigarette and smoking cessation programs.

Now, those are important programs. There's no doubt about it, but they ought to be part of something else, not part of a jobs stimulus bill. KING: Let me stick with you because you're the Democrat. Your party controls Washington right now.

Would it not be that, if I'm listening to you correctly, more intellectually honest for the president to say, here's one bill; this is economic stimulus; it is going to create jobs ASAP; here's another bill; we Democrats won the election and we think George W. Bush neglected a whole bunch of things, for eight years, and we think they desperately need money, like the programs you just mentioned?

Wouldn't that be a better way to do it, a more honest way to do it with the American people?

NELSON: Well, I'm not going to use the word "honest." I think it might be a better way to bifurcate the issues. But, at times, you put things together because of the efficiency of getting something done.

And there's no pork in this. Let me say that right away. But there may be some sacred cows.

(LAUGHTER)

And I think that's what you've identified...

(LAUGHTER)

... programs that have been pent up for a long period of time.

KING: I want to get the Republican perspective, but, Senator Collins, before you go, I want you to listen to Rahm Emanuel -- this is the president's new chief of staff -- and remarks he made, I think, before he knew he was getting that job, just after the election. Let's listen.

(BEGIN VIDEO CLIP)

RAHM EMANUEL, WHITE HOUSE CHIEF OF STAFF: You never want a serious crisis to go to waste. Now, what I mean by that, it's an opportunity to do things that you think you could not do before.

(END VIDEO CLIP)

KING: Is that what's happening here, that we have a crisis -- nobody disputes that we have a crisis -- and that there are chairmen in the House and, maybe, Democrats in the White House, who are saying, you know, there are a lot of things I wanted to do, the past eight years -- top line (ph)? COLLINS: That's exactly what has happened. Unfortunately, this bill has become a Christmas tree where members are hanging their favorite program on it.

A lot of these programs are worthwhile. But we have to focus on what the impact is on the economy and whether or not the spending creates or saves jobs. That's the question. That's the test that need to be passed. KING: So you spent the weekend trying to come up with proposed amendments when it comes to the Senate. Give me one or two specifics, where you say, Mr. President, and fellow Democrats and Republicans, this is better than the way it is now.

COLLINS: Well, both Ben and I believe that an increase in infrastructure spending makes a great deal of sense. We know that there is a backlog of projects, ready to go, across this country, that will help put people back to work in an industry that's really suffering and it will leave communities with lasting assets that they really need.

That contrast with some programs that should go through the regular appropriations process. For example, I'm the ranking member in the homeland security committee. I support an increase in funding for cyber security, but what does that have to do with getting people back to work and our economy turned around?

KING: To that point, this isn't just a spending debate. It's the first big debate of a new president who promised Washington was going to do things differently, that he was tired of the old Washington game, that he was going to come here and it was going to be done differently.

Is this the change he promised, the way this bill is being handled, right now?

NELSON: Well, I think Senator Collins and I are trying to help change things and to do things differently.

KING: I take that as a "not quite."

(LAUGHTER)

NELSON: Well, no, I think he -- he didn't put this bill together.

KING: Right. Was that a mistake?

NELSON: Well, I don't know. It's pretty hard. As a former governor, you have to deal with the legislature, I know that. He has to deal with Congress. So Congress writes the legislation.

I think what he needs to do, and has been doing, is reach out to everybody to get their ideas. Then he has to decide whether he can support those ideas.

What we'd like to do is ferret out those things that are not stimulative, in terms of job creation, because that's what we really need to focus on to help turn this economy around. It has to be robust, in terms of job creation.

We'd like to see -- we'd like to see legislation that's in place that will help do that. Infrastructure development -- many of those ideas are ready to go. We ought to pursue them vigorously. KING: And so I'm at the table with two members of the middle, two members of Congress, a Democrat and a Republican, who seek compromise. You've been down this road before on other issues.

On this one, a key early test for this president, if you lose this fight and they don't take out some of the spending you think is wasteful or perhaps even great but doesn't belong in a emergency economic legislation, will you fight?

Will you go to the floor and use your power, under the rules of the Senate, to block it until you get changes?

NELSON: Well, you never reveal all of your cards...

(LAUGHTER)

... but that certainly is one of the -- one of the strategies that is available. It's the last thing I'd like to have to do. I'd love to have all this taken out first and then we wouldn't have to deal with it.

But I think -- I'm very committed to making sure that we get it scrubbed cleaned of many of these programs. All of them basically are good, but just not part of this program.

KING: And if you can't get it scrubbed, would you, A, filibuster; or, B, vote no and urge your colleagues to vote no?

COLLINS: Well, I'm hoping that we won't get to that choice, and that is why Ben and I are working so hard.

Our goal is to have a bill that is both bipartisan and effective. That's what we want. There's no doubt that the American people don't want to see partisan politics in this debate. We're facing a serious crisis, and it's important that we send a signal to the country that we can work together, and that is was Ben and I are trying to do.

At the same time, our constituents don't want to see a bloated, overly expensive bill that wastes money and targets funding for programs that aren't going to make a difference. I think we can accomplish those goals.

KING: You think you can accomplish those goals. I want to move on to some other issues, but a simple yes or no. If something similar to the House bill comes to the floor of the Senate, would you vote yes or no?

COLLINS: It would be hard for me to vote for it.

NELSON: Same thing. It would be very difficult to vote for it. I hope that isn't the case.

One of the differences, John, is that we are talking in a bipartisan basis here and trying to bring things together from the center. That didn't happen in the House. It rarely happens in the House. KING: Let me talk about a major controversy on the front pages this morning around America. And that is your friend, Tom Daschle. He is to be not only the secretary of health and human services, but have a unique role as a Cabinet member with an office in the White House, to be the point man on health care reform. If you go home, have a town hall, I bet health care reform comes up pretty quickly. You go home and have a town hall, the same thing.

This is now the second Cabinet nominee from President Obama who has a major tax issue. More than $100,000 he has paid. And this isn't for something that people can't understand. He had a chauffeur- driven car, and he didn't declare that as income. Is that disqualifying?

COLLINS: We don't know yet enough about the details. It certainly concerns me.

I know Tom Daschle. I respect him. I worked well with him when he was the majority leader. But this is a legitimate issue. The Finance Committee is going to meet tomorrow. We need some answers. We need more of an explanation than we have now. It's an awful lot of money.

KING: He was the majority leader. He was also on the Finance Committee for some time. Pretty hard to believe he doesn't understand the tax laws, and that that's income. If you have a gift like that, a driver and a car, that's income.

What is the message does it send out to the average guy out there, who may have been audited last year for making an honest mistake on his or her taxes, who had to pay a big penalty? Some people go to jail.

NELSON: It's a tough issue. It's a tough issue, John. There's no question about it. That's why I think it is important that the Finance Committee have this private meeting with Senator Daschle to talk it over, to get a better understanding, and I'll be paying attention to what they conclude once this meeting is over.

I think it's important to point out that sometimes the first reports that come out are not always 100 percent accurate. That's why I think it's important that they do exactly what they are doing to get to the bottom of it. And I know it's a bipartisan committee, they work together. Senators Baucus and Grassley have a good working relationship. I'm sure that they'll do the right thing.

KING: Many members of your leadership rushed out statements over the past 24 hours, saying they will still definitely vote yes. Are you prepared to say that?

NELSON: I think it's premature to say how you're going to vote on anything. I supported virtually all of President Bush's nominees. So -- but I think what we need to do is just see what the Finance Committee comes out with. I'm not prepared at this point in time to vote no.

KING: You're in the same position?

COLLINS: Yes, I'm in the same position.

KING: I want to thank you both for coming in today. I want you to have an invitation to come back as this debate goes forward.

I want to close on a lighter note. Last night was the Alfalfa Club dinner here in Washington, D.C. I believe we have pictures of Senator Collins. There she is, making her way through the event. This is a closed event. Reporters get to shoot you in the quarters like this, but we don't get to go inside. President Obama's first big Washington high society event as president. Sarah Palin flew in from Alaska, so a little bit of a campaign reunion. Quickly, tell us about the dinner.

COLLINS: Well, we can't, you know?

KING: Oh, I see, rules are rules.

COLLINS: It's all off the record. But it was an awful lot of fun, and it's a great example of Democrats and Republicans, the business community, political community, legal community, even some journalists all coming together for a great evening.

KING: And it's lobster dinner, right?

(CROSSTALK)

KING: She is used to that in Maine. I don't know, how about Nebraska? You don't have an awful lot of lobster, do you?

NELSON: Well, we had beef. I'm sure it was from Nebraska, it was so good.

(LAUGHTER)

KING: Senator Ben Nelson. I almost called you governor. Senator Susan Collins, thank you both for coming in on "State of the Union."

So two members of the president's inner circle now admit to major tax mistakes, the latest to the tune of more than $100,000. How will that tax trouble affect Tom Daschle's nomination? Democratic insider Donna Brazile and leading Republican strategist Ed Gillespie on the state of the Obama Cabinet, up next.

(COMMERCIAL BREAK)

KING: So, is the new president already breaking his promise to do things differently? Or is it Republicans in the way of trying to help struggling Americans?

Joining me now, Democratic strategist Donna Brazile and former counselor to President Bush, Ed Gillespie, former Republican chairman as well.

Donna, I want to start with you. You just heard the two senators in here, including Ben Nelson. They say that this bill is loaded up with stuff that doesn't need to be in an emergency spending bill. Did the president, through letting the House Democrats write the first version, get this wrong?

DONNA BRAZILE, DEMOCRATIC STRATEGIST: Well, John, I think we are focusing on those small number of items that probably got put in the bill because we all know the legislative process. When you open it up for debate, members will add their own pork issues. But one person's pork is another person's red meat, and I think this bill has a lot of red meat to help struggling homeowners, to help people who are unemployed, to help children, to help the state governments. And I think we should focus on the positive. But clearly there will be an open debate in the Senate. Some of these items will probably be removed, and perhaps some other items will be placed in it.

KING: Some of these items might be removed. Ed, I want your thoughts, but first I want you to listen. He was President-elect Obama a few weeks ago when he did an interview with ABC, and this very subject came up. Let's listen.

(BEGIN VIDEO CLIP)

OBAMA: We want to spend the money wisely. We want to spend it prudently. But what we don't want is this thing to be a Christmas tree loaded up with a whole bunch of pet projects.

(END VIDEO CLIP)

KING: Does his first big bill, Ed Gillespie, the first big Obama initiative meet the test he laid out right there?

ED GILLESPIE, FORMER GOP CHAIRMAN: It doesn't. And that is the problem that he's seeing on Capitol Hill. And the fact is, give President Obama credit in the reaching out to Republicans, but the problem is -- I'll use a football analogy on Super Bowl Sunday -- Speaker Pelosi and the Democratic leaders stiff-armed Republicans in the legislative process and did not let them into the process. And I think that's why you see a lot of these pet projects in there.

And this is not very stimulative, John. The fact is when you're spending $650 million on direct TV transition -- or digital TV transition, $400 million for global warming research, $1 billion for Amtrak, $400 million for new -- renovations in federal buildings, that doesn't help folks out there in the real world, and that's what this bill needs to do.

GILLESPIE: The Republicans put forward a positive alternative, which I thought was good, by the way.

KING: We'll see what happens in the Senate, but stiff-armed. He says -- Speaker Pelosi, the leading Democrat in the Congress -- stiff- armed Republicans. Is that a fair critique of that?

And what -- I want to ask you the same question I asked the senators. Why not have two bills and say, "This one is an emergency economic stimulus. It's roads, it's bridges, it will create jobs tomorrow," and this one is, you know, we were here for eight years and we thought George W. Bush underfunded this, that, health care, this, and we're going to look at you straight in the eye and say, "We think these things, even in these tough times, deserve this money"? Why not do it that way?

BRAZILE: Well, first of all, the Republicans were at the table back when the bill first originated. They were at the table during the three committee hearings in Ways and Means and Appropriation, Energy and Commerce.

They offered amendments. They were offered an opportunity. The president himself went down to Capitol Hill to meet with them to offer alternatives.

And even on the floor, when Congressman Jerry Lewis, the ranking minority on Appropriations, they offered an alternative, which they were unable to pass. It had less money for infrastructure, and then they offered another alternative, which had more money for infrastructure.

So I think the Republicans here are trying to come up with arguments of why they oppose this plan because it does provide jobs. It provides much relief to the states.

John, there's some stuff in the bill that perhaps some of us would take out, but it's a good bill, it's a good start, and the Senate will probably improve approve upon it.

KING: I want to shift gears to a story that's making headlines around the country this morning, and that is Tom Daschle, who was the Senate majority leader, a prominent Democrat. He's about to get an incredibly important job in the new administration, not only as the head of a cabinet agency, runs Medicare, runs Medicaid, but he also gets an office in the White House, to be the point man on the effort to reform the health care system.

Turns out he had a car, a chauffeur driver, chauffeured car when he left the Senate, and he didn't declare that as income on his taxes. Back in June of this past year, apparently people close to him say he realized this and he amended his taxes and fixed it.

Is it a coincidence, Ed Gillespie, that June 2008, when Senator Daschle his aides say came to realize this, is the month Barack Obama clinched the Democratic nomination and maybe Senator Daschle started thinking about joining a new administration?

GILLESPIE: I don't know whether it's coincidence or not. This really looks bad, and this is a problem, and it's a problem because it comes on top of Tim Geithner's problems on avoiding taxes. It follows Chairman Charles Rangel's problems with paying taxes on luxury property in the Caribbean.

And that fact is, you know, a lot of people could legitimately wonder, from a Democrats' perspective, are these higher taxes that we're imposing for others to pay but not for us? And I think that, in the case of Tom Daschle, not paying taxes -- having to pay $140,000 in back taxes over limousine service, if this were a Republican, this would be a very difficult story. It's going to be a very difficult story for Democrats, as well, because it just doesn't look good.

KING: So how do you deal with that? Let's assume, for the sake of this conversation, Senator Daschle made a mistake. People make mistakes. And I don't want to over pile on him.

But, cumulatively, Ed made the point, your party ran against the culture corruption, in part was successful in taking back the Congress by running after Tom DeLay, saying the Republicans fostered a culture of corruption. Are you not inviting Republican attacks two years down the road if you have a pattern of these things?

BRAZILE: Well, first of all, Tom Daschle is a man of integrity. And I'm sure that his accountant and, of course, Mr. Daschle himself will explain this tomorrow before the committee.

It is an error that should have been corrected. And I'm not an accountant, so I don't know why it was overlooked in the first place. But Tom Daschle, I'm sure, is prepared to answer questions.

This is a man who's been in public service for over 30 years of his life. He is -- he is a man of character. He understands the health care crisis, and I hope he can at least answer these questions and hopefully be at President Obama's side to help reform our health care industry.

KING: I want to talk now about a change in your party, Ed Gillespie. You once served as the chairman of the party. Your party decided, after several ballots -- it was an interesting election -- to elect Michael Steele, an African-American, the former lieutenant governor of the state of Maryland, to be the Republican National Committee chairman.

It's a tough job. I'm not sure anybody would want it at the moment, but sometimes out of the ditch comes a great opportunity. What do you know about this man? And what will he do differently to the Republican Party?

GILLESPIE: Well, Michael Steele is a good friend of mine. I'm happy that he is going to be the chairman of the Republican National Committee. I think he gives us a burst of energy.

This is someone who was able to get elected statewide in Maryland, no easy feat as a Republican, ran a very effective race for the United States Senate in a very tough year, in 2006, was an effective state party chairman. That's when I first got to know him, someone that when I was chairman was incredibly helpful to me as we reached out to African-American voters and Hispanic voters in -- in a way that the party hadn't done for a while. I know he'll pick up that mantle and do more of that, as well.

And let me just say, too, by the way, I think much has been made now the Republican Party has an African-American at its head and the Democratic Party, an African-American in the White House.

I think, in both instances, obviously, that is an important factor, but Michael Steele, had Hillary Clinton been elected president or John Edwards been elected president, Michael Steele, a pretty good chance he'd be the RNC chairman today because of his effectiveness in making the case for Republican Party policies.

KING: Does he worry you, what you know of him, how he looks at organizing fundraising as a Democrat? Do you look over and say, "Well, I wish they hadn't picked that guy"?

BRAZILE: Well, clearly, he is dynamic. He is charismatic. I know him very well. He's a Georgetown Law graduate. He's a native Washingtonian who went to P.G. County. And Ed is absolutely right. He was able to win in a fairly moderate to liberal state.

But, look, Michael Steele will face many challenges as the chair of the Republican Party to get the party out of the wilderness, to reinvigorate it with new ideas, and to begin to move the party from being a regional party to a national party again. So he has a big job ahead of him.

KING: Donna Brazile, Democratic strategist and, I should note, vice chairman of the Democratic National Committee...

BRAZILE: Oh, well.

KING: ... so you'll be doing battle with Michael Steele in the weeks and months ahead.

Ed Gillespie, now a private citizen. How's that going?

GILLESPIE: Pretty well. I have found one job. I'm the assistant driver in the Gillespie household right now.

KING: Assistant driver. I'm sure Cathy Gillespie is happy for the help.

GILLESPIE: She is.

KING: Donna Brazile, Ed Gillespie, thank you so much.

Up next, your voices and your struggles. We look at the state of the economy up close through the eyes of workers losing their jobs at a big manufacturer that had, until now, escaped the pain.

"State of the Union," from the floor of Caterpillar to the living rooms of devastated families, just ahead.

(COMMERCIAL BREAK)

KING: The statistics are bad enough. The Labor Department now says a record number of Americans receive unemployment benefits, just under 4.8 million. That number on the rise because the reach of the recession is spreading. Behind that number are painful stories. And keeping our promise to include your voices in our "State of the Union" report took us this week to Peoria, Illinois. We want to show it to you on the map here. It is right out in central part of the United States. Let's come back over.

KING: Well, let's -- the map is having a little mood, going to Ohio today, another industrial state that is struggling. But in Peoria, Illinois, it is the home base of Caterpillar, the giant company that makes mining equipment, farming equipment. The Caterpillar has been there for decades, employing more than 28,000 people in the state of Illinois. Many of them just this past Friday received the worst news of all in a recession.

(BEGIN VIDEOTAPE)

KING (voice-over): Daybreak along the Illinois River, Peoria, one of the factory towns born of America's industrial heyday, now slapped suddenly by a recession it had bragged of escaping.

Caterpillar, the bedrock of the local economy, stunned workers last week by slashing 20,000 jobs worldwide, many here in the Peoria area. Then on Friday, more shock: 2,100 more jobs cut just here in central Illinois.

M. FEAGIN: I don't want to be on unemployment. I've never been on unemployment before.

KING: For John and Maribeth Feagin, a double whammy. Both worked at Caterpillar, both out of work effective Friday, three children, two cars, and a mortgage.

M. FEAGIN: You've got to budget. You've got to cut back where you need to, going to secondhand store to make sure the kids are clothed.

KING: John is going back to school using benefits from a tour in Iraq with the Illinois National Guard, but if Mary Beth can't find work within a few months, the options turn drastic.

J. FEAGIN: If things really got that bad, I would probably volunteer to go back overseas, and that's pretty bad to say.

KING (on-screen): You'd volunteer to go to -- that's Iraq or Afghanistan?

J. FEAGIN: For my family, I would, yes.

KING (voice-over): Confronting such stark choices is harder because these jobs were the gold standard. As automakers and other U.S. manufactures suffered in recent years, Caterpillar thrived because of overseas exports.

(UNKNOWN): The world knows we're the best. These people in here are all busting their butt.

KING: In a union shop, Jim Lyerly's (ph) 39-year seniority protects his job, but he worries a way of life is fading.

(UNKNOWN): I made a good living here. The kids coming in now, I'm not for sure they're going to make the same good living I made. It's bad. I really -- my heart goes out to the people, I tell you.

KING: It was that dream of a good middle-class living that convinced Chris Guynn to move his family here from Las Vegas.

GUYNN: I wanted to work with a company that's been around for 83 years and, you know, a Fortune 500 company. And, I mean, how could you lose on something like that? It was just a company that you could just retire with, great pension, great retirement, 401, and so forth.

KING: Guynn was among more than 800 workers abruptly told Friday was their last day.

GUYNN: It's hard, you know, because now that I have to look at my wife to be the breadwinner and looking at my kids.

KING: Because his wife works, Guynn is enrolling full-time at Central Illinois College.

Back to school isn't an option for Christi Williams.

WILLIAMS: Well, it was just me and my kids.

KING: There is no other breadwinner. A single mother, five young children. Williams left a job at a law firm for long-term stability and better benefits at Caterpillar. Her two-week notice came last month.

WILLIAMS: At first I wasn't worried. I just -- I've never been laid off in my life.

KING: She is worried now.

WILLIAMS: I think there's just so many people out there looking for the same position. There's a lot of very highly qualified people out there and people with degrees, such as myself, and it's just been very hard.

KING: Williams says she'd love help from Washington, but isn't counting on it. Her unemployment benefits run 10 more weeks. Juggling the bills is hard, hiding the toll at home hardest.

(UNKNOWN): McDonalds.

WILLIAMS: We'll go there later, maybe.

I don't let them see that I'm stressed out about things. I'm very nervous. I'm very nervous. And every day on the news, there's more layoffs that are being shown.

(END VIDEOTAPE)

KING: Remarkable families there. And we thank them for inviting us into their homes at such a difficult time. They want help from this town. They're skeptical the money will be well-spent.

Up next, our Sunday headlines and "Reliable Sources" host Howard Kurtz. "State of the Union" will be right back.

(COMMERCIAL BREAK)

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