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STATE OF THE UNION WITH JOHN KING

More on the Stimulus Package

Aired February 1, 2009 - 12:00   ET

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


KING: And I'm John King in Washington. Welcome to our viewers in the United States and around the world. You're watching STATE OF THE UNION.

That the economy dominates should surprise no one. The politics of the economy have turned so partisan so fast, may surprise some given President Obama's repeated promise to rewrite the way Washington does business. The latest data confirms what you probably already know, the economy is not only bad, it is getting worse.

We'll hear from two senators on the hangups, the fast action on an emergency jobs plan. They're Democrat Dianne Feinstein of California and Republican John Ensign of Nevada.

What is the right answer our economic woes? Massive government spending? Targeted tax break? Or are things so bad, no one really knows? Two very different theories on that from "Forbes" magazine CEO Steve Forbes and former Obama adviser and Labor Secretary Robert Reich

And it wasn't easy this week, but we kept our promise to go out in the country to Peoria, Illinois. More from there just as Caterpillar announced it was laying off thousands. All ahead in this hour of STATE OF THE UNION.

We're heading into the final push. The president's rescue plan for America has one big hurdle to clear -- the United States Senate. In the past week, we saw the economy hit its worst down hill slide in 25 years. But with Republicans saying the plant won't work and working families saying they need help fast, what's the best solution? Two people playing key role in that crucial Senate vote, Republican Senator John Ensign of Nevada and Democratic Senator Dianne Feinstein from California. Senator Feinstein is with me in Washington. Senator Ensign is out in Nevada.

Senator Ensign, let me start with you. You chaired the committee that is charged with electing Senate Republicans in the 2010 election. Over in the House, the leader, John Boehner, told his members last week, vote no. That is the best vote for Republicans. Will you tell your colleagues in the Senate as they look ahead to the midterm elections, vote no?

ENSIGN: Actually, what I think we should tell the Republicans, same thing the Democrats should say is, let's make sure we have a stimulus package that works, that creates jobs.

Right now we all know that the housing industry is what drug down the economy. And this stimulus bill is not fixing the housing industry. And so we need to work together with the Democrats. We have a plan that we're introducing that will actually fix the housing industry to a great degree. It will allow everybody to refinance their home mortgages at 4 percent, right around 4 percent.

What that does is not only help the housing industry, but it also puts about $400 in every American's pocket that owns a home an average of $400 per month. That is a huge boost to the economy. That would be very stimulative. If you combine that with properly targeted tax cuts, we can really get this economy going instead of doing a massive spending bill that just fulfills the last 10 years of Democrat priorities. They're using this stimulus bill as an excuse to fulfill their wish list that they've had for a long time.

KING: Your Republican colleague says an excuse to fulfill your wish list that you've had for a long time. Your colleague from California, the House Speaker Nancy Pelosi said we won the election when Republicans protested.

But we had two Democrats on this program earlier, the governor of Michigan Jennifer Granholm and your Senate colleague Ben Nelson of Nebraska. They didn't agree with everything Senator Ensign just said, but they did say there is a lot in this bill that should be put in a spending bill and that Democrats should have the courage to stand up and say we think these are important priorities. But that those things don't belong in an economic emergency relief package. Do you agree with that?

FEINSTEIN: Well, I think the package will be changed. It will be changed in conference. You have to realize I'm a appropriator. We get the bill 24 hours before it comes to a vote in the committee. Therefore, it's a big bill. It spends a lot of money, much more than we're accustomed to.

My own view is we have an enormous job bleed in this country. And you just announced Caterpillar's layoffs. And I saw a man in Ohio who had five children and a grandchild and lost his job and didn't know what he was going to do.

I think the infrastructure part of the package and I know Ben Nelson who has been a governor and others who have been governors and mayors believe that if you can get money into the updating and modernization of infrastructure, if you can start those high-speed rail systems which make us competitive, redo our ports so that they're competitive, the new electric grid and the new energy economy that you put people to work which is important and you're really beginning to do what this package should do.

KING: So the urgency you have for those projects is quite obvious. But would you then support stripping out computers for the Agriculture Department, consolidating the Department of Homeland Security headquarters, anti-smoking money, money to fight sexually transmitted diseases, all probably worthy goals? But should they come out of a bill that you say is an emergency economic rescue package?

FEINSTEIN: I think it's a possibility, I would. I think the place for this is in the conference committee between the House and the Senate when we can hear from the House members.

KING: So the Senate should leave that stuff in there or take it out?

FEINSTEIN: Well, if we can take it out as we pass it, there will be some of that. My interest in the passage is get a more robust infrastructure package.

KING: Senator Ensign, I want your views on the tone in Washington. President Obama promised he would be bipartisan. He has had a number of meetings with Republicans. A lot of Republicans say they haven't gotten much from the meetings yet. But before you jump in, I want both of our senators to listen to a radio ad. It is running out in Nevada. Senator Ensign, if you turn on the radio while you're home, I'm sure you heard it. And it targets you, sir. Let's listen.

(BEGIN VIDEO CLIP)

UNIDENTIFIED FEMALE: Now the Obama plan goes to the senate and the question is, will our Senator John Ensign side with Rush Limbaugh, too?

RUSH LIMBAUGH, RADIO TALK SHOW HOST: I hope he fails.

UNIDENTIFIED FEMALE: Or will he reject the failed economic policies of the past and stand up for the people of Nevada?

(END VIDEO CLIP)

KING: I assume you don't appreciate that, sir.

ENSIGN: Listen, that's all part of being in politics. That doesn't bother me at all. I think that the president is setting the right tone in Washington, D.C. He's reaching out. We had a couple meetings with him last week. I know the president. We used to work out before he was running for president. We used to work out at the same time in the Senate gym. He is, you know, he is the kind of person that reaches across party lines.

I think he is setting the right tone. The problem is the Congressional Democrats are not listening to him. When you look at the House bill, the House bill had no Republican input. The Senate bill has had no Republican input. If you want to put a package together that's going to work, neither party has all the right ideas. What we want to be concerned for those people who are losing their houses, people who are losing their jobs. And we need to be Americans first before we're Republicans or Democrats. And unfortunately, the Democrats are not listening to the president of the United States and saying work together.

If the Democrats would have worked with us, they could have come up with a plan that actually solved the housing crisis. Because regardless of those other jobs you're going to create, you're not going to treat the cancer that's affecting our economy. And that's the housing problem. This cancer spreads to other parts of our economy. But it's still the underlying problem.

And that's why we have put together a plan to solve the housing problem in the United States. And if you don't do that, whatever short term jobs you're going to put in with this stimulus bill, it's really a spending bill, are not going to help bring us out.

If you remember, the Depression, all of these infrastructure spending bills were put in, but we lasted 10 years. Does anybody want to have the kind of economy, this kind of an economy for 10 years? We need to solve the underlying problem as we're addressing through the properly targeted tax incentives for businesses and individuals to get this economy going, to grow jobs, to stabilize the economy.

KING: Quick time-out here. When we come back, Wall Street firms teetering on bankruptcy giving executives billions of dollars in bonuses. The president called it shameful. Why didn't Congress put limits on how that federal bailout money could be spent? We'll put that question to Senators Ensign and Feinstein when we come back.

(COMMERCIAL BREAK)

KING: Outrage on all the Sunday morning talk shows this morning, across Washington and, I suspect, across America, and word some of that federal bailout money has gone to big bonuses for bank executives.

We're back with Democratic Senator Dianne Feinstein of California and Republican John Ensign of Nevada.

I want you both, before I get your thoughts, to listen to one of your Senate colleagues, Claire McCaskill, Democrat of Missouri, on the Senate floor this past Friday.

(BEGIN VIDEO CLIP)

SEN. CLAIRE MCCASKILL, D-MO.: We have a bunch of idiots on Wall Street that are kicking sand in the face of the American taxpayer. They don't get it. These people are idiots. You can't use taxpayer money to pay out $18 billion in bonuses.

(END VIDEO CLIP)

KING: Strong language, there, "These people are idiots."

Senator Ensign, to you first. I assume you don't want taxpayer money going to these big bonuses. Is part of the problem that, in the initial installment of what we call, in Washington, in TARP, that bailout money, there weren't strict rules on how that money should be spent?

ENSIGN: Well, and it goes to the problem, in Washington, when we rush through legislation, we usually don't do things right.

And that's exactly what happened with the TARP funds. We rushed that legislation through. It was a, quote, "panic" at the time. We overreacted. And that happens so many times in Washington, D.C. We're seeing the same thing with the stimulus bill, that people are creating artificial deadlines. Yes, we need to act swiftly. But you need to make sure you do it right.

The TARP funds were not done right, and we're seeing a lot of side effects that are outraging the public. And when we rush things through Washington, we get a lot of things wrong.

KING: So, Senator Feinstein, what now?

There's outrage. Your friend, Senator McCaskill -- that's great language, "They're idiots." Should something be done to stop it, or is your time better spent on bigger issues?

FEINSTEIN: Oh, something should be done to stop it, no question about that. This is a lot of money; $350 billion has gone out; another $350 billion is requested. And people say you need more beyond that.

And this is not a popular program with the American people. Our goal...

KING: That's an understatement.

(LAUGHTER)

FEINSTEIN: ... it would seem to me that Wall Street should be sensitive to this. I believe salaries should be limited. I believe bonuses should be done away with, for the time being. And I believe that there should be transparency.

I've introduced a bill. It's a bipartisan bill to provide for this. And the $350 billion was supposed to be put up on the Internet, as to its uses. And it has not been.

So I think there has been a level of noncooperation in Wall Street. I think a lot of it strikes at the culture, which is, kind of, inbred and "This is the way we do things," and "World, you just have to leave us alone. It's the American way."

Once you take federal money, the culture changes and the world changes.

KING: Let's talk about something else that many Americans might, over the next week or so, say, "I guess that's just the way they do things in Washington."

This is a front page, newspaper from Vermont, The Valley News. Down here, you see "Daschle, enriched by health sector, bungled taxes."

Tom Daschle is your former Senate majority leader in the United States Senate. He is Barack Obama's choice to be the secretary of Health and Human Services. And it turns out, we learned, starting Friday, he had to pay more than $100,000 in back taxes for, among other things, having a car and a driver and not reporting that as income.

This comes on the heels of a Treasury secretary, who runs the IRS, who also had a tax problem.

Senator Feinstein, you are a chairwoman of a committee in the United States Senate. You have to vote on this. I know Tom Daschle is a friend. Does this disqualify him?

FEINSTEIN: I don't think it disqualifies him. And I'll tell you why. I've been there 16 years. I have watched Tom Daschle. I have worked with him. I have seen his leadership potential. I know personally how much he cares about health care reform.

What's important to me, in this nominee, is that he knows how to do it. He's had the experience with the Hill to know the difficulties of moving a program. He watched the Clinton program go through the Hill. He saw the problems. And I think, hopefully, he can avoid them.

So I believe that this is a mistake. And I suspect, John, you're not perfect; I'm not perfect. Mistakes are made. The taxes are going to be paid. It should not destroy the worth of this man for the American people.

KING: I'm not perfect, Senator. And, Senator Ensign, I assume you would not say you are, either.

But politics can be a funny business. And when you have a Treasury secretary who had a tax problem, now it looks like a Health and Human Services secretary who had a tax problem -- I've been at this a little while, and I can see Republican ads, conservative ads going after this president saying things like, "He promised to change Washington. I guess that's a change." You know, "He promised an honest and ethical administration. Oh, really?"

Is this going to be t-ball for Republicans in the political sphere?

ENSIGN: Well, I don't know about t-ball for Republicans. But, certainly, the media should be looking into this very closely.

We have to look at the details of exactly what Tom Daschle knew, what he didn't know. And I think all of this will come out during the hearings.

But a bigger problem is that our new president has talked about not only cleaning up his administration but also getting rid of the whole revolving door.

Well, Tom Daschle was part of that revolving door. You know, he says he doesn't want to employ any lobbyists. But Tom Daschle worked for a lobbying firm, made millions of dollars, gave speeches to the very industries that he's now going to be working with.

What kind of favors did they curry? All these kind of questions need to be answered. And, certainly -- and not only that; Tom Daschle's wife is a lobbyist. I mean, it just -- it is part of that inbreeding culture that we have in Washington, D.C., that I think that needs to be stopped.

And if we want the American people to trust us in Washington, D.C., we have to do things in a different way.

I think that the president is sincere in his desire to do things in a different way. And, unfortunately, some of his nominees, whether it was the commerce secretary, Bill Richardson and his problem; the number two person in the Department of Defense, or these two nominees for the department.

(CROSSTALK)

ENSIGN: There's some problems here.

KING: I get your point. Quickly, Senator?

FEINSTEIN: I want to say something. You know, I think it's really disingenuous. Republicans brought us the revolving door, the whole K Street plan. Republicans went out to develop an historic relationship with the lobbying community. And now they turn around and they're the great critics.

KING: I don't mean to be rude. But I want to get you -- before we run out of time, I want to get your thoughts on this front page L.A. Times story. This is your committee, the Intelligence Committee.

"CIA Retains Power to Abduct."

We know that Barack Obama has said no more torture, that he will close Guantanamo Bay, prison detainees. But this articles, in the L.A. Times, says he has signed executive orders to continue the controversial CIA practice of rendition, essentially scooping up suspected terrorists around the world, sometimes taking them to secret prisons.

What can you tell us about this?

FEINSTEIN: I don't believe that's true. What he said is that there can be temporary housing. There has to be temporary housing. You pick somebody up; you have to know what they have done. You have to have some time...

(CROSSTALK)

KING: The rendition -- the rendition...

(CROSSTALK)

KING: The CIA, under an Obama administration, retained the right for rendition, to scoop up suspected terrorists around the world.

FEINSTEIN: Not -- not in that sense that you mean rendition, which is sending them, also, to another country or to a black site.

What they're talking about is temporary holding. The fine points of it have to be flushed out and will be flushed out. I've met with Greg Craig about the executive order on two occasions, now.

The Intelligence Committee will be providing oversight over it. And as you know, I have a bill to close Guantanamo, to end contractors doing interrogations, to have one standard across, which is the Army Field Manual.

The executive order coalesces with this bill. And we need time to really address the fine points of the executive order and see if it's sufficient or if we need to codify some of this.

KING: We'll keep our eye on it, as that often secretive process continues.

Senator Dianne Feinstein of California, thank you much.

Senator John Ensign of Nevada. And I should, for the record, you handed off the duty. I said you were the chairman of the committee that helps elect Republicans. You handed that off to your colleague, Senator Cornyn. I wanted to correct the record, there.

Senator, thank you both for coming in to join us on "State of the Union."

Now, the first sit-down interview for President Obama -- it did not go to an American network. When we come back, we'll bring you this exclusive interview and discuss why the president chose to speak to the Muslim world in his first full week as president.

Much more "State of the Union" ahead.

(COMMERCIAL BREAK)

KING: Welcome back to our viewers here in the United States and around the world. President Obama gave his first television interview this past week. In a symbolic gesture, he chose the Saudi news channel Al-Arabiya to get our his message to the Mideast, specifically to the Muslim world. Here is a snippet of that interview.

(BEGIN VIDEOTAPE)

OBAMA: My job is to communicate the fact that the United States has a stake in the well being of the Muslim world. That the language we use has to be language of respect. I have Muslim members in my family. I have lived in Muslim countries.

UNIDENTIFIED MALE: The largest one.

OBAMA: The largest one, Indonesia. So what I want to communicate is the fact that in all my travels throughout the Muslim world, what I've come to understand is that regardless of your faith and America is a country of Muslim, Jews, Christians, nonbelievers. Regardless of your faith, people all have certain common hopes and common dreams.

And my job is to communicate to the American people that the Muslim world is filled with extraordinary people who simply want to live their lives and see their children live better lives.

My job for the Muslim world is to communicate that the Americans are not your enemy. We sometimes make mistakes. We have not been perfect. But if you look at the track record, as you say America was not born as a colonial power and that the same respect and partnership that America had with the Muslim world as recently as 20 or 30 years ago, there's no reason why we can't restore that.

And that, I think, is going to be an important task. But ultimately, people are going to judge me not by my words but by my actions and my administration's actions. And I think what you'll see over the next several years is that I'm not going to agree with everything that some Muslim leader may say or what's on a television station in the Arab world.

But I think that what you'll see is somebody who is listening, who is respectful and who is trying to promote the interests not just of the United States but also ordinary people who right now are suffering from poverty and a lack of opportunity. I want to make sure that I'm speaking to them as well.

I do think that it is important for us to be willing to talk to Iran, to express very clearly where our differences are, but where there are potential avenues for progress. And we will over the next several months be laying out our general framework and approach. And as I said during my inauguration speech, if countries like Iran are willing to unclench their fists, they will find an extended hand from us.

(END VIDEOTAPE)

KING: Let's get some critical insight now from our senior international correspondent Nic Robertson. Nic, you're just back from Saudi Arabia. You spoke to Saudi officials and also just some every day Saudis in the country.

The United States is not viewed very favorably across most of the Muslim world. I think that's quite an understatement. When they hear President Obama speaking in such personal terms about Muslim family members, living in Indonesia, how is this interview being received and as it is received, does it change perceptions quickly or will this take time?

NIC ROBERTSON, CNN SR. INTERNATIONAL CORRESPONDENT: I think it does begin to change perceptions quickly. A lot of people in the Arab world were looking to President Obama to use this type of language, to show that he's been listening to what they've been saying throughout President Bush's administration which is, as you know, highly criticized in the Middle East.

And they recognize this change of tone. And as President Obama says that, he'll be judged on his actions and not his words. And that's really what we hear from people in Saudi Arabia and other countries in the Middle East. These are the words we want to hear. But now we do need to see the actions.

But it is a very good open. It's a very good page turner, his first page for the Arab world in his administration. So it's going to be seen and is being seen as a positive step. And that's going to allow him a little bit more time to get things right, to implement some of the policies he wants to implement, for all those things he wants to be judged on.

So a good start but really people are, and they tell us they are, they want to see him follow-through, see action that they can support as well.

KING: And from your time in Saudi Arabia, one of the policy matters he discussed in that interview was I want the leadership of Iran to know we're willing to talk to them. Is that something the Saudis and other Arab leaders say, great, or are they saying, wait a minute, we want to deal with the Muslim and Arab world first?

ROBERTSON: No. They recognize that the whole of the Arab world's relationship with Iran is one that is entered a new dynamic and a new state of affairs with events over the past few years in Iran. But Iran has emerged, perhaps feeling a little stronger, that it's also a foothold in involvement, a diplomatic involvement and military partially involvement in Afghanistan.

And the Arab world wants to see that Iran is not going to sort of go through an expansionist phase. So they're very keen to see a dialogue grow with Iran. Saudi Arabia in particular is very concerned about Iran's potential expansion of its influence inside Iraq, which Saudi Arabia obviously has a very great border with as well. But they would far rather see this dealt with in diplomatic terms through language rather than -- rather than further outbreaks of war.

So this sort of language is something that they're going to look to to deal with the region's problems without inflaming tensions. And that's something they're going to feel better about. It gives them less problems to deal with.

KING: Fascinating time. Not only here in the United States but the new administration but around the world. Nic Robertson, thanks for your insights. We'll watch this one in the weeks ahead. Thanks very much, Nic.

And when we come back here, we'll return to the economic crisis here in the United States. When it comes to stimulating the economy, which works best -- tax cuts or big government spending? It depends on whether you're talking to Steve Forbes or Robert Reich. We're breaking down the remedies for the ailing economy next 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. More than 400,000 are without power in Kentucky, nearly a week after an ice storm hits the state. National Guard troops are going door to door to check on residents. And another winter storm is expected to hit the South and Northeast tomorrow.

The countdown is on for Super Bowl XLIII. Security is tighter than ever. There are metal detectors, bag checks and pat downs. And for the first time in sport history, TSA offices are using behavior detection as they observe fans entering the stadium and tagging any suspicious activity. The officers will also be at hotels and the Tampa Airport.

Massive layoffs announced at companies across the country this week, one of the biggest, Caterpillar Inc. slashing more than 20,000 jobs. I sat down with some of those folks the day the layoffs were announced. You'll want to know what they had to say. All of that and much, much more ahead on STATE OF THE UNION.

The United States Capitol there on a beautiful Sunday here in Washington. January will go down as a brutal month. The economy stumbled backwards at the worst pace its seen in a quarter century. So which part of the president's rescue plan will stimulate the economy? And which won't? Joining me now to debate that, former Republican presidential candidate and CEO of Forbes, Inc, Steve Forbes. And former labor secretary and Obama adviser Robert Reich.

Let me start, gentlemen, with that simple question, what is the fastest way for the government to create jobs? Secretary Reich, you first.

REICH: John, the fastest way and almost all economists agree on this is to expand unemployment insurance, provide food stamps, also provide help to states who have to be cutting back now because most states don't by constitutional authority, don't have the authority to go into deficit.

Doing that gets money directly into circulation. The next most effective way is to build infrastructure, to get people building roads and highways. The new electric grid, providing broadband, all of that does take time. But those jobs are critical jobs and they build future productivity.

And then the third most effective way is to provide tax cuts. I expect your other guest, my friend Steve Forbes may not agree, but that's third priority.

KING: Well Steve, jump in. To the point, see if can you do your own math of the priorities. Secretary Reich's first point, unemployment insurance and other things. They don't really create jobs. They do help people. They give people a safety line. But they're not creating jobs.

FORBES: Yes, and those kinds of safety nets have been and will remain in as long as we have this crisis. Its been proven since the 1930s. The key thing is though how do we get this economy moving again? One of the critical things we have to do is get the banking system moving again. It's like the heart of the body. It is still frozen right now. And so they've got to make a couple of quick changes there. One is to get rid of this crazy rule called mark to market. Every time a bank makes a loan now, it knows it's going to take a hit to its balance sheet. Get back to what we had before we put that in a few years ago.

Another thing on housing, this is why I don't understand what this administration doesn't do, now that we have 4.5 percent mortgages, banks won't write them. Why doesn't the Federal Reserve, Fannie and Freddie -- save the banks, write 4.5, 5 percent fixed rate mortgage, we'll buy them from you. That would be very stimulative to the economy.

In terms of the stimulus bill itself, yes, there are some good parts in it like a broadband and the electrical grid and things stuff like that. That a real powerful thing is have the payroll tax for two years, that gives people more money. But it also reduces the cost of hiring people, reduces the capital gains legislation for two years. You put that together, this economy starts to move again.

KING: But you have two such competing philosophies. And everyone talked in Washington, let's find the middle ground. I might just ask, this is a yes or no question, is there a middle ground between Steve Forbes and Robert Reich or do we just need to debate this and see which party has the votes in the end?

REICH: Well, I think there's a big middle ground. If I heard Steve Forbes correctly, we agree on the infrastructure and on the electric grid and all kinds of other things. Let me just make sure that you understood me with regard to direct payments to people in need and also helping state and local governments.

All of that money in circulation, in people's pockets would actually create jobs because one of the problems now is that people don't have the money. They're not going to the malls and are not generating jobs.

So there is a big, big gap between demand, that is how much people are buying and businesses are buying and what the capacity of the economy is right now. What you want to do is have enough money in people's pockets and enough new jobs to generate higher demand, to get us up to fuller capacity.

KING: At what price, Steve Forbes? You mentioned the financial industry, $700 billion in the pipeline to bail out banks for the most part, the financial sector -- $820 billion, the price tag is likely to grow when this stimulus package makes its way through the Senate. At what price? Where do we reach the price where deficit spending in the United States causes more problems than any of these specific programs in the legislation might fix?

FORBES: Well, short term, we do have the capacity to do it. But the danger is that we make the mistake Japan made in the 1990s which had six rate stimulus packages, a lot of infrastructure but didn't get the economy moving. Why? Because they didn't deal with the problems of the banking sector and they did not reduce the price of people who want to take risks and create jobs.

That's why reducing payroll taxes, reduce the price of labor helps both the workers and the employers. Reducing the capital gains levy so you get risk taking again. There is a lot of innovation in the pipeline, nanotechnology and other things. And the banking system, you get rid of market to market and a few things like that help housing and we'll move forward. And you don't have to have a huge price tag on it. A few targeted things, we'll get this thing moving again.

KING: We had a House plan that passed without a Republican vote. There is now debate in the Senate. The Senate, even Democrats say, will have a quite different package. I want you to listen to Senator Chuck Schumer. This is Chuck Schumer this morning on CBS talking about how the Senate version will be significantly different than the House.

(BEGIN VIDEO CLIP)

SCHUMER: The package is very much needed. It by and large meets what most economists say is there. And the Republicans won't have the luxury that they had in the House of voting no and still letting it pass. We received one vote in the Finance Committee. One Republican vote for in the Senate. This will pass with Republican votes because it's a good package and because we will make some changes around the edges.

(END VIDEO CLIP)

KING: Some changes around the edges. Secretary Reich, doesn't sound like they're going to change a lot. I want your position on the record. There are a lot in this bill that the Democrats say are spending priorities, they couldn't get through when George W. Bush was president. They may be worthy goals.

Do you think, to be intellectually honest, you're a professor, that they should be stripped out, put in a separate bill? Democrats should say this is our priority. This is spending that we couldn't get through in eight years. This bill is stimulus. Would it be more intellectually honest to separate the two?

REICH: John, I think that the Senate is going to change some of the things in the House bill. You know, the House put in a few items, apparently, like restoration of the Washington Mall that doesn't seem to anybody to generate new jobs or even put necessarily a lot of money into people's pockets so they can go and generate new jobs through their buying. So there will be changes. And then there will be at conference committee.

REICH: My real concern is that this drag out too long? Americans need to have a stimulus package very, very soon. If this goes beyond the end of February, that, in my judgment, is going to be too long.

I'm not saying haste makes -- haste could make waste as we saw with the first TARP program. But it is very, very important that the Senate and the House and as many Republicans as possible come onboard and get this stimulus going.

KING: Some Republicans, I know Senator Pat Roberts of Kansas has said, let's do an infrastructure bill tomorrow, we call all agree on that, we'll get that passed tomorrow, and then we'll deal with these other things.

When, if the market and the economy is based in part on confidence, will the American people be confident when they see the final version of this bill and it has billions for roads and bridges, billions maybe for the electric grid, but it has millions to consolidate the Department of Homeland Security headquarters, millions for computers at the Agriculture Department, millions for anti-smoking programs, again, all maybe necessary programs. But do they belong in this bill?

(CROSSTALK)

FORBES: Well, John...

KING: Steve Forbes.

REICH: If you're asking me, I would say that a lot of them don't belong in the bill. But the bill as it is probably is too small. The gap between total demand for goods and services coming from consumers and from businesses, well, that total demand is -- the gap between that and what the economy could be producing is over a trillion dollars...

KING: Is the bill...

REICH: ... this year. It's probably going to be over a trillion dollars next year.

KING: ... too small?

FORBES: No. The bill...

REICH: The bill is much smaller than that.

FORBES: The bill is not -- is too big in the sense if you want stuff that really gets the economy moving, the banking sector mark-to- market doesn't cost anything. Give some McDonald's gift certificates to the accountants who are going to be mad about it. But it will help stem the hemorrhage there.

In terms of tax cuts, reduce the payroll tax. That really does create jobs. And capital gains levy, does support risk. Housing, why not have the Federal Reserve instead of buying Treasuries, which does no good, aggressively buy mortgage-backed securities so banks can make mortgages again?

Positive things like that, John, won't cost $800 billion, but will have a sharp, powerful impact on the economy and banking sector. KING: Let me ask you both 30 seconds in closing before we run out of time. I want to start with you, Steve Forbes, because you publish a magazine that is widely read in the financial community. There is this big brouhaha in Washington about bonuses, in part because some of the banks giving them out took some of that taxpayer money.

A fair political argument and a fair policy debate or just politicians finding something to grab on?

FORBES: Well, it's populist because they did not use taxpayers' money. But it does get to the golden rule about politics. He who has the gold makes the rules.

(LAUGHTER)

FORBES: And Wall Street has to get used to the fact that if you are going to take Washington money, taxpayer money, you are going to have to do things you may not like, have to do. And that, again, gets to why the sooner we get the banking sector back on its feet, we won't have Washington trying to make -- decide who to make loans. And one of the dangers which I think Bob -- Robert Reich will agree with me is protectionism.

They're going to say you can't make loans to companies overseas. You can't do this, you can't do that.

KING: All right. Secretary Reich?

REICH: Yes, well, I agree with the president. This was shameful and outrageous. He didn't use the word "outrageous," he used shameful, because these big banks are getting billions of taxpayer dollars. They -- many of them are technically insolvent.

They couldn't even be going on if they didn't get the taxpayer infusions of money. And for them to turn around and give big bonuses on the basis of one of the worst years in Wall Street's history is just absurd.

And I hope that the next TARP tranche, that is, the next bailout of Wall Street that is coming, actually has very, very clear limitations on executive salaries if not a claw-back on the bonuses that have already been paid.

KING: Secretary Robert Reich in California with us this morning, Steve Forbes with us in studio, thank you very much. The next tranche of TARP, there is some Washington-speak for you. That means the second installment of the bailout.

Gentlemen, thank you very much.

From the economy to the president's first couple of weeks in office, a lot of opinions on the talk shows this morning. But conservative Grover Norquist gets the last word right here next on STATE OF THE UNION.

(COMMERCIAL BREAK)

KING: A total of 39 analysts, pundits, and critics made the rounds on the Sunday talk shows this morning. Each week, one person gets the last word right here. Today it is Grover Norquist, president of Americans for Tax Reform and a leading conservative activist.

Welcome.

NORQUIST: Glad to be with you.

KING: You just heard the debate about the economy between Steve Forbes and Secretary Reich, senators who have been out all week long talking about this. It is a critical test for the new president, but it is also a defining moment for the conservative movement and the Republican Party.

What do they do with this new administration? You saw not one Republican voted for it in the House. Now the debate moves to the Senate. I want to read you something from humanevents.com this past Friday about the challenge here for conservatives and Republicans.

"It is much to be hoped that the Republicans in the Senate will display similar fortitude," referencing the House vote there. "That seems unlikely, given the number of senators who think the way to show sophistication and flexibility is to sell out. A sellout of this sort here will hurt the American people and seriously damage their own party."

So should Republicans just vote no?

NORQUIST: Well, Republicans should offer a real alternative as the Republicans in the House have, reducing those government -- those things the government does, which hurt job creation: high tax rates, long depreciation schedules; and offer instead of the spending programs, lower taxes and more pro-growth policies.

What Obama and Reid and Pelosi want to do is they show up at one side of a lake and put a bucket in and take a bucket of water out, then the three walk around to the other side of the lake, hold a press conference and pour three buckets of water into the lake and announce they're filling up the lake with water.

That's what Robert Reich believes will fill up the lake with water. If you look at that and say, wait a minute, you took three buckets out, you put three buckets in the lake is the same amount, you take $800 billion out of the economy in taxes or debt, then you wander over to the other side of the economy and throw the money up in the air and announce you're stimulating the economy.

Every dollar spent by the government only exists because it was taken out of the economy somewhere else. As pointed out, Japan did this for 10 years, and it was a lost decade. Argentina did it for 30 or 40 years. And it hasn't helped. You don't want to go that direction.

KING: And so as this debate unfolds in the Congress, your party has a new leader, at least at the Republican National Committee. George W. Bush is gone from town. The Republican National Committee had an election. Michael Steele, the former lieutenant governor of Maryland, and an African-American, is the new leader of the Republican Party.

I want you to listen to something he said after winning the election.

(BEGIN VIDEO CLIP)

MICHAEL STEELE, CHAIRMAN, REPUBLICAN NATIONAL COMMITTEE: Failure to communicate on the war, Katrina, the bailout. Yes, we'll stop there.

(LAUGHTER)

(END VIDEO CLIP)

KING: He is laying the blame there on George W. Bush. Failure to communicate on the war, Katrina, the bailout, we'll stop there. Is just -- getting George W. Bush out of Washington, is that enough to revive the conservative movement of the Republican Party?

NORQUIST: Well, it's step one. Because, as long as George Bush was president, he was the leader of the modern Republican Party. He spent too much money. He didn't get permanent tax cuts. He spent six years being mayor of Baghdad, rather than president of the United States.

That's problematic, in terms of then looking to him for leadership of the Republican Party or the conservatives.

KING: And so -- we only have a minute left. This moment, back in 1993, was, quote/unquote, "good" for conservatives and Republicans.

NORQUIST: Yes.

KING: Bill Clinton came to town, and then you had the Contract with America. Newt Gingrich came in.

In a condensed version, what you are doing now that, in your view, will bring that about?

NORQUIST: Yes, there are two models. In 1990 George Bush Sr. got together with the Democrats and they spent too much money. He lost the presidency in '92. That's the failed model: get together and do something bad bipartisanly.

The good model is to offer a solid conservative alternative, as Republicans did in '93 and '94, and as they're doing now in the House. In '93 and '94, they refused to join the Clintons in spending too much and taxing too much. They offered an alternative vision of limited government and pro-growth policies.

The Republicans, right now, are wisely moving in that path.

KING: The last word goes to Grover Norquist today. We'll have you back on the program, as this debate folds out.

And, 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 and the living rooms of devastated families, just ahead.

(COMMERCIAL BREAK)

(BEGIN VIDEOTAPE)

KING (voice over): 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's on the rise because the reach of the recession is spreading. Behind the number, painful stories.

And keeping our promise to include your voices in our "State of the Union" report took us, this week, to the factory floor In Peoria, Illinois.

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, 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.

MARIBETH FEAGIN, FORMER CATERPILLAR EMPLOYEE: 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 second hand store to, you know, make sure the kids are clothed.

What book do you want to read?

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

JOHN FEAGIN, FORMER CATERPILLAR EMPLOYEE: If things really got that bad, I would probably volunteer to go back overseas. And that's pretty bad to say.

KING: You'd volunteer to go back to Iraq or Afghanistan?

J. FEAGIN: For my family, I would, yes. KING: Confronting such stark choices is harder because these jobs were the gold standards. As automakers and other U.S. manufacturers 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 Lierle's 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. It -- 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.

CHRIS GUYNN, FORMER CATERPILLAR EMPLOYEE: I wanted to work with a company that's been around for 83 years and, you know, a Fortune 500 company. I mean, how you could lose on something like that?

It was just a company that you could just retire with, great pension, great requirement, 401(k), 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 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.

(UNKNOWN): Well, it's 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.

CHRISTI WILLIAMS, FORMER CATERPILLAR EMPLOYEE: 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.

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

(END VIDEOTAPE)

KING: Remarkably strong families, there, dealing with remarkable adversity. And we appreciate being invited into their homes.

We'll be here again next Sunday and every Sunday at 9 a.m. Eastern for the first and last word in Sunday talk. And in the unlikely event you missed any part of our program, tune in tonight, 8 p.m. Eastern. We'll showcase the best of today's "State of the Union." Until then, I'm John King in Washington.

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