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STATE OF THE UNION WITH JOHN KING

State of the Union: Best Political Team on Television

Aired February 22, 2009 - 11:00   ET

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


JOHN KING, HOST: And now more of our STATE OF THE UNION report for this Sunday, February 22nd.

President Obama prepares to give his first address to Congress. What should his message be?

We'll ask three top political analysts about his push for bipartisanship on Capitol Hill.

It's been called the forgotten war. Now 17,000 more U.S. troops are headed to Afghanistan. But do they have a clearly defined mission? We'll get all sides of the story from three of our best reporters.

And we'll head out to Michigan to hear how residents of one town hit hard by the recession, are coping with the economic mess. That's all ahead in this hour of STATE OF THE UNION.

The Capitol building here in Washington, D.C., on this Sunday morning and the economy will be the primary focus when President Obama makes the trip up Pennsylvania Avenue to the Capitol building Tuesday night for his first speech to a joint session of Congress. No surprises, it's also the topic of conversation among the nation's governors here in Washington this weekend for their annual meeting. Two of those governors, both Republicans from the South, say they'll say no to some of the stimulus money.

(BEGIN VIDEO CLIP)

BARBOUR: There are some we will not take in Mississippi.

JINDAL: The $100 million we turned down was temporary, federal dollars that would require us to change unemployment laws. That would have actually raised taxes on Louisiana businesses. We as a state would have been responsible for paying for those benefits after the federal money disappeared.

(END VIDEO CLIP)

KING: We'll talk more about the economy when the governor of California joins us this morning. At an earlier stop, Arnold Schwarzenegger says he's happy to take whatever his fellow governors might turn down.

(BEGIN VIDEO CLIP) SCHWARZENEGGER: I'm more than happy to take his money, or any other governor in this country that doesn't want to take the money I take it because we in California need it.

(END VIDEO CLIP)

KING: President's new foreclosure plan is also a big debate this morning. Some question whether the plan is fair for those who find a way to make their mortgage payments on time. (BEGIN VIDEO CLIP)

SANFORD: Let's just make the math simple. About 95 percent of folks are playing by the rules and struggling, but still paying their mortgages. The idea that somebody down the street gets a different system I think is ultimately something that is going to undermine a whole lot of other folks in regards to paying the mortgage.

(END VIDEO CLIP)

KING: As you can see, as always, we've been watching all of the other Sunday shows so you don't have. Let's bring in three members of the best political team, as we do every Sunday at this hour, break down what's been said today and the other big headlines of the day and the week to come.

Joining us now from San Francisco, CNN contributor Donna Brazile, the vice chair of the Democratic National Committee. And with me here in Washington, Republican strategist Kevin Madden, CNN political analyst, Gloria Borger.

Donna, let me start with you. You got up early for us out on the West Coast. When you hear the Republican governor saying we don't want some of this money because it ties our hands and it will make us raise taxes down the road if we want to continue those unemployment benefits, what do you say?

DONNA BRAZILE, CNN CONTRIBUTOR: First of all, I think they're being short sided. Sitting here in California over the last couple of days, watching the governor, the lawmakers make some very important decisions about cutting, of course, cutting, spending across the board, raising taxes to try to meet the demands of this great state.

Look, these governors are facing a huge fiscal problem. Their residents need this money. They need it in the form of health care, education, infrastructure spending. I understand that, after a couple of years when, if people are still unemployed, that the states may have to kick in, but this is an investment in the future and I hope governors would reconsider.

KING: Kevin Madden, the disagreement among governors in your party, why the philosophical divide?

KEVIN MADDEN, REPUBLICAN STRATEGIST: Well look, I mean, to Donna's point, I don't think it's short sighted. It's quite actually visionary. They are looking towards the long term, fiscal health of their states. They know that many of the states were very -- were spending a little bit too much in the good times and right now, we have to cut back on the short times and we have to make sure that we're not just looking for rifle shots from the federal government in order to balance the state budgets.

So you're looking at some fiscal conservative governors who want to put forth fiscal conservative plans that are going to help the long-term growth in the future. But I think to Governor Schwarzenegger's point, you know, there is a certain pragmatism here that all of the governors are going to have to engage in.

We're starting to see probably a little bit more of a crumbling of ideology and a little bit more of a practical application for what we need to do to help many of these states out of the their economic situations.

GLORIA BORGER, CNN SR. POLITICAL ANALYST: I think the governors have a problem because these governors, Bobby Jindal, Haley Barbour, they do have the ideology. They don't want to look like a bunch of hypocrites and suddenly going to the public till and taking the handout from the federal government. Their problem is going to come when their citizens start to suffer if they don't take the money or when they get overruled by their own state legislatures, which some of them may very well do.

BRAZILE: To Gloria's point, let me just speak as a native of Louisiana. We have taken billions of dollars from the federal government over the last couple of years to help in our rebuilding efforts after Hurricanes Katrina and Rita. Yeah, there was some stipulations attached to that money, especially the money that was given to us through grants and so forth.

But the truth is, is that we were in an emergency, we needed resources. I think these governors are smart enough to understand what they can take, what they can use to rebuild their states and help them with the economy here in the short term that will get people back to work.

KING: There's a fairness question in play, too. You heard Governor Sanford in the open talking about the housing plan. I want to show you the front page of the "Boston Globe" here, "Bailout lament: what about me?"

This is about a gentleman who says he pays his mortgage and he has to scrape by to do it. It's hard to make the payments every month, and yet, he believes maybe this is perception, maybe it's reality, he believes he keeps paying the bills and now his tax dollars are going to go maybe to the guy up the street who shouldn't have bought that house to begin with. Bought too big of a house, took on too big of a mortgage that he can afford. This guy's scraping by, he's probably telling the kids we can't go to McDonald's or we can't go to Disneyworld this year, I'm going to make my payment. Is it fair, Kevin, the way the president has it now? Obviously you need to deal with this crisis.

MADDEN: Look, in politics, perception is reality. And you know that's one of the big challenges for both Republicans and Democrats here because Democrats have to -- are putting forth a plan that many people feel is unfair.

I'm paying my mortgage, why can't the guy down the street who made decisions when he went out for his mortgage, do the same? And Republicans are essentially going out there and saying we don't want to put more money as the problem. But I think that many people are going to have to come together. If we are really going to get through this problem, they are going to have to recognize that what's freezing up the markets right now is the fact that those houses are still on the market and they're unpaid and all these foreclosures.

The next door who has been foreclosed on is hurting my home, whether I'm paying for it or not. So there is going to have to be some sort of middle ground here and I think right now both parties are going to face a communications challenge with explaining both of their remedies for this problem.

BORGER: You know, the truth of the matter is, this problem is so huge and so important for us to get out of this mess that sometimes you are just going to have to bail out the person who behaved irresponsibly.

You are going to try not to do it all the time. They do have some tests in this, hopefully that would weed out some of those folks who really behaved irresponsibly.

But in the end, sometimes those folks are just going have to get bailed out. It doesn't make anybody happy, but we've all got this big problem.

MADDEN: a very, very bitter medicine.

KING: And as we discuss this bitter medicine, we talked about the stimulus plan. But let's come back up to 10,000 feet. The president of the United States will go up to Capitol Hill. It's a big moment for any president every year. For a new president, it's not the State of the Union, it's just an address to Congress.

At the moment, Donna Brazile, let's start with you, because you're a top Democratic Party official. He did get the stimulus bill through. It's a big victory. He's not achieved what he hoped to achieve early in Washington, which was a new tone, a new spirit of bipartisan. What is the biggest challenge for the president with using this huge platform, an address to the American people and Congress Tuesday night, what is challenge one?

BRAZILE: Well, first of all, John, this president has been in office less than 33 days, so I think the fact that he is going to continue to reach out to the Republicans, and not just the Washington Republicans, but the governors and the mayors and ordinary people across the country, I think the president should outline his budget.

He should talk about his fiscal responsibility summit, because I think people really want to know if we can afford all of this. And then I also believe that the president should try to throw some truth out there about what's in this stimulus package -- that so many lies have gone around as the truth, that people need to know exactly how this new package will improve their lives in the short term.

KING: And as you guys jump in, I just want to show the front page of the Sunday "New York Times" here. "Obama planning to slash deficit, despite stimulus."

BORGER: It will take him awhile.

KING: He'll give this big speech to Congress. He just said, we need to spend money on the stimulus, we are probably going to have to spend more money on financial institutions, probably have to spend more money on the auto industry bailout and yet he says he'll make some tough choices down the road to reduce the deficit.

BORGER: Right, and part of the way he's going to slash the deficit is to end George Bush's tax cuts for the wealthy, let them phase out. He's also going to not spend as much money obviously in Iraq but he's going to do two things, I've been told in the budget.

He's going to tell you here is what the real deficit's going to be because I'm not going to use these accounting gimmicks, these rosy scenarios we always used to talk about.

I'm going to put in my budget the fact that we do have to account for natural disasters like Katrina. We do have to pay for the war. The war doesn't disappear. But I'm also going to show you how in the out years we're going to have a downward glide as they call because this is the spending. I'm not going to spend. And this is the money I'm going to save on things like health care and energy, those are going to be two very important components. So he's also going to talk about the future.

KING: And if he cuts it in half, Kevin, as promises it will still be $533 billion, or somewhere in that ballpark, billions -- billions of dollars annual. That's an annual operating deficit for the federal government. Never mind the long-term debt.

But one of the ways he's going to do it as promised in the presidential campaign, this should not come as a surprise to anybody, is to say, bye-bye to the Bush tax cuts for those who make above $250,000 a year and some other adjustments to the Bush tax cuts that Republicans will of course call tax increases. Where is this debate going?

MADDEN: Well, I think it's interesting that President Obama and the Democrats sent a trillion dollars out the door and now saying they're going -- which essentially piled more money on top of our deficit and now they're saying they're going to cut it in half.

I was talking to one Senate Republican aide that's said that's like knocking someone's teeth out and then giving them half a set of dentures.

I think what we're going to see now -- the big flashpoint here is over the Bush tax belief that was enacted. I think the idea that we're going to levy a greater burden of taxes amongst American taxpayer at a time where we're in a recession, is going to cause a lot of Republicans to fight back.

And I think one of the reasons why is that we do not want to sap out the liquidity of the market right now, and instead we want to keep -- have more people keeping more of their money and investing in it in the larger economy.

BORGER: But wait for the...

KING: A quick time out, quick time out. We're going to get to a quick break. We'll talk about this on the other side. A lot more to talk about. Donna Brazile, Kevin Madden, Gloria Borger, stay with us.

And here's a quick glance at what's still to come on today's STATE OF THE UNION, as you heard in our 9:00 a.m. hour, governors across the nation are dealing with falling tax revenues, painful budget cuts. Arnold Schwarzenegger will tell us the hard decision he had to make in California. He joins us live at the top of the hour.

Michigan is struggling with the highest rate of unemployment in the country. Is another auto bailout the answer? Governor Jennifer Granholm gives us her take in just a few minutes.

And three of CNN's best correspondents will be here to break down today's news from economic policy to the war in Afghanistan and Iraq.

And as we promised since we first went on the air, we're going to hear from you. Our conversation over coffee, this week from the Fremont (ph) Diner in Lansing, Michigan.

(COMMERCIAL BREAK)

KING: We're back with Donna Brazile, Kevin Madden, and Gloria Borger. We were talking taxes before the break.

Donna, I want to bring you in on this point, because the president did promise during the campaign when they was Senator Obama that he would eliminate some of the Bush tax cuts. And he is going to do that as part of his budget.

In the stimulus debate, we saw the Democrats hold together. Are there conservative House Democrats out there who are in Republican states, in districts that are very tough for them who will have -- find this a very tough pill to swallow, to go home and say, we need to raise some people's taxes right now?

BRAZILE: Well, first of all, let's look at the $288 billion in tax relief that's in the current stimulus bill. The president, I'm sure, will tell the American people that starting in April they're going to start getting money back from the federal government. That's a good thing.

He's giving 95 percent of American people some form of tax relief with this stimulus package. And, yes, he did campaign honestly and say that the Bush tax cuts will expire when their day is due.

But look, this president inherited record deficits, debt. President Bush, his administration doubled the deficit. President Clinton and Al Gore left a record surplus. So this is about trying to get ourselves back on a sustainable fiscal path and hopefully this president will lead us there.

KING: And, Gloria, you know, the Republicans will say big spending, tax-raising Democrats.

BORGER: You think?

(LAUGHTER)

KING: How does President Obama make the case, no, this is -- this needs to be done for this purpose?

BORGER: Well, first of all, everybody understands that we're in a crisis. He was -- candidate Obama, I might remind everyone here, said that he was going to repeal President Bush's tax cuts for the wealthy immediately. He's clearly not going to do that.

He's also going to have to some tax increases, I'm told, in this -- in the corporate world. And then I'm also told what he's going to do, which may make it more palatable to the American people is that he's going to earmark some of these tax cuts for health care, which would be a tax increase...

KING: For the additional money that comes in...

(CROSSTALK)

KING: Money comes into the government, they steer it to health care.

BORGER: For -- steer it to health care, which may make it more palatable for people because at least they know that it has got a purpose that people really feel we need.

KING: Let's talk about another issue in the news, the administration has said it does not want to nationalize the banking system. But Chris Dodd, Democrat of Connecticut, the chairman of the Senate Banking Committee, says he doesn't want to do it either but he thinks it might become necessary if the bleeding continues.

More banks are getting all of this bailout money but their bottom line deteriorates in many cases. I had the Senate Republican leader, Mitch McConnell, on the program a bit earlier. I asked him about this possibility, let's listen.

(BEGIN VIDEO CLIP)

MCCONNELL: I agree with the administration. I think nationalizing the banks is exactly the wrong thing to do. And we certainly shouldn't go in that direction.

(END VIDEO CLIP)

KING: Is that the direction, though, Kevin Madden, the debate is heading?

MADDEN: You know, I think the direction of the debate is heading about nationalization, but I see very little chance for it to actually happen. I think what's -- what we're seeing right now is that they're -- along the lines of party lines Republicans, and Democrats agree that we don't want to see nationalization.

The problem right now is whether the market believes it's a necessity, and the market forces start to push government action to a degree where more and more money from the government is going into the banks in order to prop them up.

And then I think again the argument becomes, do we let one of these banks fail? And so far, there has been very little appetite for that because what's really driving economic anxiety right now is people's lack of confidence.

And the government, Republicans and Democrats, don't want to see any of these banks fail, because it just will shatter, again, both investors' confidence, consumers' confidence and the banks' confidence.

BORGER: And with all of the limits, by the way, on corporate -- on compensation for executives at banks, I think you're going to see executives rushing to repay the government to get out of the so-called TARP program because they don't want to be beholden to these rules which limit their compensation tremendously.

BRAZILE: I think Secretary Geithner should finish up his review, the stress tests, so to speak, and let the American people see what -- you know, what banks are doing well, what banks may have to be bought up by another bank, let the private markets now get involved.

And I think this talk of nationalization is just another type of negative talk that is -- that once again is discouraging people from investing again.

KING: The National Governors Association is meeting here in Washington, as it does every winter, just after a presidential election, these meetings have a subplot. Everyone looks around to say, who's our next president.

Of course, everyone in the room thinks they should be the next president, they think they should be the current president. But among those being asked this question is Donna's governor, Bobby Jindal of Louisiana.

He was asked a question earlier on another program this morning. Let's listen.

(BEGIN VIDEO CLIP FROM "MEET THE PRESS")

JINDAL: I want to run for re-election to be governor of Louisiana 2011.

DAVID GREGORY, HOST, "MEET THE PRESS": You're not ruling out a run for the presidency?

JINDAL: What I'm is I'm running for re-election, I have no plans beyond that.

(END VIDEO CLIP)

KING: That is the correct answer any strategist like Kevin Madden would give the governor. You know, you worked for Governor Romney in the last campaign, and he's very active out there, and would most believe that Governor Romney is going to give it another try down the road.

A, have you already pledged your loyalty to Governor Romney? And just give us your assessment of the jockeying that goes -- under way.

MADDEN: Well, first of all, my mother is so disappointed in me, because I'm 37, the same age as Bobby Jindal, and I'm not governor of any state yet.

(LAUGHTER)

MADDEN: So, look...

BORGER: We love you.

(CROSSTALK)

MADDEN: Yes, of course, I'm a Romney guy, everybody knows that. I think that he has committed himself to helping Republicans everywhere, helping, essentially -- and I think goes to Bobby Jindal's point, Republicans have to coalesce around ideas.

We were always the party of ideas. We were the party of reform. We were the party that took on the status quo in Washington. And in 2006 and 2008 we took, you know, a trip to the woodshed because we've lost on all of those and we don't want to go back to the woodshed.

So I think that governors like Bobby Jindal, governors like Haley Barbour, Tim Pawlenty, ex-governors like Governor Romney, who are really dedicated to rebuilding the party around ideas, are going to do so.

And then, as a result, I think you'll see individuals emerge, people like Jindal on Medicare reform, Tim Pawlenty on reaching middle class voters, folks like Governor Huntsman out in Utah.

So I think that's where the party is headed right now.

MADDEN: And we've got to get to 2010 first, before we look at 2012.

BORGER: You're not mentioning anyone from the Hill, I noticed, nobody from Washington.

(LAUGHTER)

Nobody from inside Washington.

KING: Do we agree on that...

(CROSSTALK)

KING: ... run against Barack Obama?

MADDEN: I think you have a lot of really good, young Republicans leading the party, folks like Kevin McCarthy from California, Eric Cantor from Virginia.

But, right now, we have to be a party that reemerges around Main Street, out in Peoria, versus K Street in Washington.

KING: Madden's covering all his bases, in here. He's mentioned just about everybody.

(LAUGHTER)

He is your governor, Bobby Jindal. I don't mean to single him out, but A, what do you think of him?

I know you disagree with his policies. What do you think of him as a potential candidate?

And, B, in the short time we have, do you think it will be a governor who runs against Barack Obama in three years?

BRAZILE: Well, I think Governor Jindal is a very attractive candidate. I think he would give the Republicans not just a new face but a new message. And he has shown himself to be someone who is above-board. And, you know, many people in the home state, they're very proud of him.

That said, I don't think that Governor Jindal will be able to pull the Republican Party out of the wilderness. They just don't get it when it comes to standing up for ordinary, middle-class Americans. And they really need a champion who can go out there and talk about the economy, jobs, and not just the old stale politics of the past.

KING: The first part of that will be on bobbyjindal.com soon...

(LAUGHTER)

... not the second part.

(LAUGHTER)

Donna Brazile, in San Francisco, Kevin Madden and Gloria Borger, here in Washington, thank you very much for getting up on this Sunday morning.

And straight ahead, how Michigan's governor, Jennifer Granholm, is dealing with her state's tough times.

First, a quick program note. On Tuesday, President Obama will address Congress. As we just noted, major focus on the economy. And I'll be hosting, right here, a special Web edition of "State of the Union," Tuesday, noon Eastern. Reserve your spot. Go to facebook.com/cnn. Join the conversation. Again, that's Tuesday at noon. We'll be right back.

(COMMERCIAL BREAK)

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

An administration official says President Obama will seek to cut the federal budget deficit in half, to $533 billion by the end of his first term. The official says most of the savings will come from spending less in Iraq and raising taxes on people who make more than $250,000 a year.

A coal mine tragedy in China: the state-run news agency reports an explosion killed 74 miner in northern china. More than 100 hospitalized, at least six in critical condition.

A break in the eight-year-old murder case of Chandra Levy. Her mother says an arrest is imminent. A source close to the investigation says an arrest warrant is being finalized. The suspect is a Salvadoran immigrant convicted of similar attacks in the Washington part where the former intern disappeared back in 2001.

That and more ahead on "State of the Union."

When we were out in Michigan, this week, talking to auto workers, we also visited the state capital to sit down for a chat with the Democratic governor, Jennifer Granholm.

You see her office here, in the state capitol. It is a spectacular building in Lansing, the governor at her desk, here, in the ceremonial office. Our conversation began asking the governor how she's preparing to deal with all that new stimulus money coming from Washington.

(BEGIN VIDEOTAPE)

KING: What is the bar -- now that it's coming your way, what's the accountability bar for you?

GRANHOLM: Oh, I think there is an accountability here. I think all of that pressure shifts from Washington to the states, as it should. And so, for us, we're identifying, right away, the money that can flow quickly. And that is the transportation projects, because we have a process in place to be able to do that.

KING: Highest unemployment rate in the country.

GRANHOLM: That's right.

KING: You've been in this ditch for a while.

GRANHOLM: For a long time. KING: Tell me about some of the choices you've had to make over the past couple of years, when it's been bad, and that you have to make now.

GRANHOLM: So, since 2001, we've lost over 400,000 jobs in our state alone. It's been a very tough period being governor. I wish we were here during the time when we had billions of dollars in the rainy day fund. That just has not been our situation.

KING: And so what have you had to cut, where you've gone home at night and just been muttering under your breath about, you know, I never thought I would have to do that and I never thought I could do that?

GRANHOLM: Yes, well, I mean, I'll give you an example. I just presented a budget last week. We've had to cut every bit of arts funding. We've had to cut categorical spending from our education. Up to this point, education has been sacrosanct. We have had to go after that.

We've had to go after a lot of prevention dollars in health care that we wouldn't have ever wanted to do before.

KING: If you listen to the president and his team in Washington, they say, look, we're doing our best to try to help but it's going to get worse before it gets better. Is that still the case here?

GRANHOLM: Yes, it is. I mean, I've said that three times today, as a matter of fact, just warning people that, because of what we're seeing -- in fact, the plans that General Motors and Chrysler presented demonstrated that we're going to lose more jobs in the auto industry.

KING: Answer the critic out there who says, at this moment in time, the federal government's already deep in debt; I wish I could help out General Motors and Chrysler, or at least those workers, but it's not the proper role of the federal government, not proper use of taxpayers' money to bail out a company that screwed up.

GRANHOLM: Is that same critic going to say the same thing about the banking industry, where they didn't have to do a single thing to get billions and billions of dollars which were not loans?

What the auto industry's asking for are loans. And if you don't do it, as what the GM proposal showed -- if you don't do it, it's going to cost the taxpayers $60 million, much more expensive to clean up after the unbelievable wake that would be left.

KING: Do you worry at all, in this environment, as a Democrat, that, if you watch what's happening in Washington, all but three Republicans voted against the stimulus plan.

They are making the argument that, you know, billions, billions, billions and billions, and they're already saying Barack Obama and the Democrats are presiding over the era of the big bailout. GRANHOLM: Please, please. I mean, here we have a president that is trying to create jobs in this country, rather than getting our nation deep into debt, because we're creating jobs perhaps, or at least spending an awful lot in another country on a war that was based on false premises.

It was the previous administration that got us into this. President Obama is trying to get us out of this.

But I can tell you, too, that the governors who are trying to decide whether they're going to accept the stimulus money or not will take it, will take it, will take your money. South Carolina: I'll take your money. Louisiana: We'll take it; we've got plenty of work here, plenty of jobs that we'd like to create here.

KING: Governor, thank you for your time.

GRANHOLM: You bet.

(END VIDEOTAPE)

KING: Governor Granholm, there, making clear she'll take the money from Washington. But a number of governors do have second thoughts about the stimulus. They're speaking out this morning, and we'll break down what they had to say with three of CNN's best reporters. That's straight ahead.

And Michigan may have the dubious distinction of having the nation's highest unemployment rate. But California, not too far behind. Governor Arnold Schwarzenegger joins us live at top of the hour. "State of the Union" will be right back.

(COMMERCIAL BREAK)

KING: The Capitol building there on a beautiful Sunday, chilly Sunday here in Washington. In two days, President Obama will stand in that building before a joint session of Congress and lay out at least a broad outline of his first budget. As you can see from the headlines in the morning newspapers, the "New York Times" here, "Obama planning to slash deficit despite stimulus." That's the "New York Times." Here in the "Washington Post" this Sunday, "Obama's first budget seeks to trim deficit." From the headlines, you see he intends to raise taxes on wealthy and raise them a lot earlier. Earlier this morning, the number one Republican in the Senate previewed what is almost certain to be a very tough debate about taxes.

(BEGIN VIDEO CLIP)

MCCONNELL: I don't think raising taxes is a great idea. And when our good friends on the other side of the aisle say raising taxes on the wealthy, what they're really talking about is small business. Vast majority of American small businesses pay taxes, as individual taxpayers.

(END VIDEO CLIP) KING: Joining me now here in Washington to discuss the big speech and a whole lot more, Pentagon correspondent Barbara Starr, national political correspondent Jessica Yellin and senior White House correspondent Ed Henry.

And Ed, let's start with the speech. Because the president has this enormous platform to address the joint session of Congress but really an address to the American people. The point about the budget and the tax fight that will come, just out of the stimulus debate where he didn't get any Republicans, I assume they think this is a fight they have no choice but to have now?

ED HENRY, CNN SR. WHITE HOUSE CORRESPONDENT: They have to. They've got to get some more revenue at some point to pay for what he wanted to do on health care, what he wants to do on the economy and they also realize, when you step back from these policy disputes, that he is going to have to be somewhat optimistic.

He's going to walk a fine line here. You heard the criticism from Bill Clinton, a mild criticism but he said he needs to wrap these speeches up after he talks about crisis and catastrophe and put a little sunny optimism in the end, that we're going to get through this.

But they are walking a fine line. What senior White House officials say is they feel the Bush administration spent too long saying the economy's going to get better, things are relatively OK, President Bush would never use the "R" word, recession, until the very end of his second term in office.

And so they feel they have to be blunt about the crisis but they are also getting the message, they say, that it has to be a combination, they have to be optimistic as well.

KING: And Jessica, still a huge political challenge. He's enormously popular. If you look at any polls, we have new ones this morning, his ratings are just fine, trustworthy, strong leader, people like him as their president. But three in 10 Americans think the stimulus will help them. How does he connect his popularity to his policies?

JESSICA YELLIN, CNN NATIONAL POLITICAL CORRESPONDENT: He has to do it with his greatest gift, which is his ability to communicate. And he's going to do that Tuesday night with not just the stimulus, but with some of the initiatives Ed was talking about, especially health care reform, energy reform, education. He's going to outline an incredibly ambitious agenda that he really thinks they can get done quickly in what is a very contentious Congress right now because they think there's a public momentum behind these initiatives as long as he uses what we were talking about, his ability to communicate.

HENRY: And Barbara, when you see these headlines, "Obama's first budget seeks to trim deficit," you know where this president's going to look and you know where the Democrats in Congress have been saying for some time, the place where we can get a lot of money and it's called the Pentagon. BARBARA STARR, CNN PENTAGON CORRESPONDENT: Absolutely. That's why your Pentagon correspondent's here this morning. This is the week the economic war will meet the Pentagon. They're going to get a number from OMB, the Office of Management and Budget this week, that they will be allowed to spend, something like $535 billion in the coming year, but it's still not enough.

They need another $70 billion to carry the war through the end of September. So Bob Gates is getting ready to swing the budget axe. Defense contractors cross the country are just scared to death. They're making the case behind the scenes. It's jobs, jobs, jobs. Don't cut my fighter jet, don't cut my submarine, don't cut my warship. And Bob Gates is saying, hang on, we're going to cut something here and we're going to cut big.

KING: But when we talk about this, I want to stick with you for a second here, Barbara, when we talked about this, we talk about he signed the stimulus bill, that makes it his economy. Sure he can say I inherited this from Bush, but it's his economy now. He will be held accountable down the road. Iraq and Afghanistan, are they now his wars? STARR: Absolutely his war. And that very thing in the midst of all of this, I would say is making the Pentagon nervous and probably the White House as well.

Unbelievably, I was doing a live shot, I said this is now Obama's war, referring to Afghanistan. Get off camera, ring, the phone rings, it's an official from the administration. What do you mean it's Obama's war? We just got here. I'm like excuse me, you won the election a month in. Afghanistan is his war.

It is going to cost a boatload of money, now Iraq still goes on. They're going to try they say to cut the deficit by saving money by getting out of Iraq, but the cost of Afghanistan, the cost of everything in the military going up, it's going to be very tough to cut enough military spending to really make a substantial mark in the deficit.

HENRY: Do you remember the first day they announced that there were 17,000 more troops going to Afghanistan? The day that the president signed the stimulus law. That got all of the attention.

And obviously the president was up front. He put out a statement about it and all that. But you notice what didn't get very much attention, we've essentially increased the forces by about 50 percent in Afghanistan.

It's something that is being undercovered right now, but is it in fact President Obama's war now and he's defended the fact that, look, this is where the terrorists were harbored that led to 9/11 and he's suggested it's a just war and it needs to be finished and he needs to bring it to victory. That's going to cost money, as you say. So even as they bring money down from the war in Iraq, they're going to be increasing funds to Afghanistan. So it's a very tricky balancing act.

KING: It is day 33 I think. We're a little bit more than a month into the administration, Jessica. He's under pressure to bring the troops home from Iraq from liberals. He has decided to send more troops to Afghanistan. He gets the stimulus bill, he has to propose a budget, more money to the banking industry, maybe more money to the auto industry. This is a very busy president. And now he goes before the American people and what does he need to do to keep them along for the ride?

YELLIN: He needs to do what we've all been talking about, which is add a little bit of optimism to all of it to a certain extent and say, look, there's a larger, on the horizon better things are coming. But also --

KING: But can he say that?

YELLIN: Well the problem is, right now everyone's caught up in this argument about why are we helping other homeowners who didn't do what we did? He has to make the point that we're all in this together. And that he's being more honest than in the past. Look, he's counting the dollars that are going to the war inside his budget. He's counting the tax dollars, the AMT inside his budget. I'm being more honest, he has to say, I'm being more truthful. And he has to say come along with me and then do what Clinton did after he got beat up, which is go to governors and mayors and say if Congress isn't on board, the governors and mayors are going to make my case for me and go to the people.

KING: It's an interesting moment in the country. I want to show some polling if we have it ready. If you ask the American people, all Americans, would you rather see President Obama try to pass laws with bipartisan compromise, 55 percent of the American people, it's all American people. Without Republican support, 44 percent say forget the Republicans. But if you ask just Democrats the question, just Democrats, would you rather see the president try to pass laws with bipartisan compromise, only 40 percent of Democrats -- 58 percent of Democrats say essentially roll the Republicans, do it without GOP support. He can't, right in the long run?

HENRY: As we saw with the stimulus fight, as you know, he needed at least three Republicans to get it through.

HENRY: So he has to at least reach out.

But the senior White House officials say they did learn this lesson coming out of the stimulus, that they -- the president wants to be sincere about reaching out, but they can't frame it as the be-all and end-all, as the barometer of success.

Because in the end, the Republicans are making clear that the large majority of them are going to go against a lot of his policies. And even when they pass, as you've been talking all morning about the governors, a lot of the Republican governors are -- or at least a large number of them, are saying, we may not want some of this money.

So they're doubling down in their opposition. And the president is doubling down in his ownership of this economy.

YELLIN: And what they'll say, the senior officials in the White House will say, look, we don't have to actually get bipartisan sign-on on everything, we have to show that we're trying.

And they also believe that when it comes to substantive policy issues like health care, like energy reform, that you actually get more bipartisanship than you do on something like a stimulus, because spending fights are always necessarily more partisan and there's more of a public support, outcry for something like health care reform.

So they do think they can get more sign-on.

KING: And, Barbara, when you talk about the contractors lining up, saying, jobs, jobs, jobs, you know how this works, the president says I want to cut this program or that program, and then the chairman of that committee says, oh, no.

What's going to happen now with a Democratic president and a Democratic Congress fighting the military-industrial turf war?

STARR: It is already under way on Capitol Hill, you're absolutely right. You know, contractors, for any one program, a fighter jet, contractors in 44 states, so somebody makes the...

(CROSSTALK)

KING: Funny how they do that, huh?

(LAUGHTER) STARR: Yes. Somebody makes the left wheel, somebody else makes the right wheel, and that's how you -- how they preserve jobs, it's how it has been done in this town, you know, for decades.

And so already the Democrats are lining up -- there is a very interesting economic question, though, about whether defense jobs, although they're so important for the people on the assembly line who are getting that paycheck, are they really productive for the economy? Are they productive in the same way as health care jobs, education, construction, or defense jobs, making a fighter jet, making a submarine, sort of one-off?

You have the employment and then the employment goes away. Again, very serious for the people who get the paycheck. They must have that paycheck. But is it really preserving that spending, is that really beneficial to the economy over the long term? A lot of people are looking at that question very hard.

KING: Everybody stand by. We'll be back with our correspondents in just a minute. A lot more ground to cover.

But first, let's go to Campbell Brown in New York for a preview of what she'll be working on in the week ahead -- Campbell.

CAMPBELL BROWN, HOST, "CAMPBELL BROWN: NO BIAS, NO BULL": John, Lance Armstrong is getting back on the bike again and we've got a "NO BIAS, NO BULL" interview with seven-time Tour de France champion. We'll be talking to him about his return to racing, the rumors of his possible run for political office. And the next step in his global fight against cancer. Plus, the full story about tracking down his stolen bike. All that along with the latest in news and politics tomorrow, 8:00 p.m. Eastern on "NO BIAS, NO BULL" -- John.

KING: Thanks, Campbell. And still a lot more to come here on STATE OF THE UNION. In the next hour, we'll be talking about the administration's new plan to rescue homeowners with Governor Arnold Schwarzenegger and the housing secretary, Shaun Donovan.

But first, as we always do on this program, we get out of Washington as often as we can. This week we stopped by the Fremont Diner in Lansing, Michigan. Hippie Hash (ph) is the special. We talked to some regular people who think that personal responsibility should come before a government handout.

(COMMERCIAL BREAK)

KING: Back now with Barbara Starr, Jessica Yellin, and Ed Henry. We were talking before the break, a big night for the president, his first address to a Joint Session of the Congress. Technically not a State of the Union Address. That will come next year. This is just an address to the Congress and the American people.

It will tell us a lot about his agenda, but it will also tell us how much this town has changed since the election. And in the context of that, I want to play, this is George W. Bush in his first official State of the Union Address. This is back on January 29th, 2002, the first State of the Union after 9/11, let's listen.

(BEGIN VIDEO CLIP)

GEORGE W. BUSH, 43RD PRESIDENT OF THE UNITED STATES: Our nation will continue to be steadfast and patient and persistent in the pursuit of two great objectives.

First, we will shut down terrorist camps, disrupt terrorist plans and bring terrorists to justice. And, second, we must prevent the terrorists and regimes who seek chemical, biological, or nuclear weapons from threatening the United States and the world.

(END VIDEO CLIP)

KING: The end of that, that last sentence, of course, was part of the lead-up to what ultimately became the war in Iraq, the show down with Saddam Hussein and the war in Iraq.

But, Ed Henry, on the larger tone, after 9/11, every time George W. Bush went up to stand there in the House, you knew that the war on terror, keeping Americans safe was going to dominate the speech.

HENRY: Absolutely.

KING: We're in a different world.

HENRY: National security, homeland security. Instead, you know, White House officials acknowledged that 75, 80 percent of this speech Tuesday night is going to be about foreclosures and, you know, taxes and spending and all about the economy, all about the financial crisis.

That is front and center right now. It's fascinating this week that Secretary of State Hillary Clinton, for all of the time we spent a couple of months ago talking about, boy, her first trip abroad, going to be a big deal, every issue on the foreign policy front, big deal, her trip got very little attention this week, a little bit here and there, but it's all about the economy.

KING: And in Congress, when they hear the shift, the Democrats, of course, like it. But there's pressure on this president on the international front. We heard George W. Bush right at end there, again, that became step one in we have to confront Saddam Hussein.

There are a lot of Democrats up there who, A, say you haven't given us a good plan on Afghanistan, you want to send troop there, we don't see a clear strategy; and, B, remember, you are the guy who promised to bring those troops home from Iraq.

YELLIN: He's getting enormous pressure, especially from the liberal/progressive wing who want him to act quickly. Fortunately for him, most voters are right now are so preoccupied with their own situation, the kitchen table issues, that he can defer this for some time, making the biggest decisions of all in terms of the politics of it.

But he's going to get some discontent if he doesn't, at least, give some sort of verbal encouragement, assurances that he's going to follow through on the promises he made on the international front to the liberal wing of his party.

KING: And when we discussed the challenges, they don't get as much attention right now. But you note that the Pakistani army chief of staff will be here in Washington this week.

Now the economy is going to get all of the focus, the speech is going to get all of the focus, but this is a huge question for this president.

STARR: General Kayani is coming to town. There will be a series of very private meetings across Washington to talk about that Taliban and al Qaeda safe haven in Pakistan.

But let me add something else, John. It was just a few days ago the director of national intelligence, Admiral Denny Blair, told Congress the number one threat right now is the world economic situation.

You can bet the intelligence community is looking at this. Russia is seeing oil revenues fall. China is seeing a huge rise in unemployment. Destabilization in countries, Iran, due to the economic turmoil, something concerns the intelligence community a great deal and just ties back together this sort of potential emerging theme that the economic situation is not divorced from America's national security in the minds of many officials. KING: And to that point, trying to focus on his part of it, the president will have this economic summit, fiscal responsibility summit, he calls it, at the White House this week.

HENRY: Very interesting. We'll have Judd Gregg, who was supposed to be his commerce secretary, be his point person on dealing with fiscal responsibility, entitlement reform, social security, Medicare, as you know better than anyone perhaps -- George W. Bush spent a lot of time trying to deal with these entitlements.

It's very difficult to get the Congress to do anything serious about it. When you look at the numbers, it's getting worse and worse. And as much as the president needs to focus on the economy short term, these long-term budget issues, how you are going to start cutting Medicare, how are you going to deal with Social Security long-term. It used to be a really long-term issue, now, it's starting to become more and more of a short-term, mid-term issue.

KING: And what's our sense of the urgency of the administration? Mitch McConnell on the program earlier said that he would go along with this proposal to do it like base closings. You make a decision, you put it all in one package, Congress has to vote up and down. He says the president should embrace that when it comes to Medicare, Medicaid, Social Security.

YELLIN: I make a prediction that after the fiscal responsibility summit, we'll see this White House say we need to have some sort of a panel or a commission to study tax reform long-term and Social Security reform long-term. Put that off a little bit, say we're focused on it, but in the short term, we're focus immediately on legislation to get massive health care reform, universal health care reform and push energy and climate change before those other long-term entitlement issues.

KING: So buying a little time.

YELLIN: Buying a little time.

HENRY: That's what President Bush had too, he had reforms on tax reform, had these panels, and he also had a panel on entitlement reform and what not and here we are, a few years later.

YELLIN: And it's no mistake that over this weekend, they leaked that he's going to cut the deficit, that that's a goal so that we know fiscal responsibility is a big theme for him and then he's going to start talking about more spending later on this week. KING: And Barbara Starr will be walking the halls of the Pentagon trying to find out exactly what they're trying to cut. Barbara Starr, Jessica Yellin, Ed Henry, thank you all for coming in and joining us.

Straight ahead, some blunt talk from people we met over breakfast in Lansing, Michigan. And if you want to talk to us, here's your chance. Tuesday at noon, go online for a special Web edition of STATE OF THE UNION. We'll preview President Obama's speech to the Congress with the best political team on television and our friends on Facebook. Join the conversation, go to CNN.com/live, that's Tuesday at noon Eastern.

(COMMERCIAL BREAK)

KING: Every week on STATE OF THE UNION, we've stopped by a diner to see what people think. This week, it was the Fremont Diner here in Lansing, Michigan. Lansing right here in central Michigan. And look at this. If you see, this is a state that has been punished by the economy, 10.6 percent unemployment, nearly 600,000 jobs lost in the state of Michigan since 2001, many of them of course in the auto industry.

The foreclosure signs are everywhere in Lansing, 13 in every 5,000 homes in Michigan had a foreclosure in the month of January. So when we sat down at the diner here, and you can see this is Obama Country, let me move this out of your way. Lansing is in Ingham County, it's a small county, 66 percent of the vote went for Barack Obama and yet, when we sat down at the diner over breakfast, some criticism off the administration, questions as to whether it's new housing plan is fair. Some blunt talk over breakfast.

(BEGIN VIDEOTAPE)

KING: Voted for Obama, all three of you, OK? We're a month into the administration. Is there anything you see so far, and I'll start with you Maureen, that you don't like?

(UNKNOWN): Well, I don't like the way the Republicans are not getting on board with supporting him.

KING: That bothers you?

(UNKNOWN): Yeah, I think we need to come together as a country.

RALPH HARMON, LANSING RESIDENT: Pretty much the same thing.

KING: What about all three of you talked about the values of living within your means. There's a foreclosure problem. You see it here in Lansing as you drive around. People are losing their homes. The homes are losing value and people are essentially underwater they call it. Their mortgage is more than their home is worth. Are any of you in that situation?

DON HILLIARD, LANSING RESIDENT: Our house, although we just refinanced yesterday, to lock in a good rate, but our house on the appraisal was below 2002 appraisal by about a third, so we've lost that value, but we're not upside down on our house.

KING: Does it bother you, again, the new foreclosure plan the administration is putting forward is going to try to help people who may have bought a house they couldn't really afford in the first place. Does that make you mad, that they will get help with your tax dollars and you're playing by the rules?

HARMON: I'm concerned about that, that they're going to be paying rent, our mortgages for people who aren't going to pay it themselves. I'm really concerned about that. I agree. I think the personal responsibility has been lacking in a lot of people and I don't appreciate paying for someone else living above their means.

KING: What is it like to live here? If you came to these communities 20, 25 years ago, you said GM was king, you should be called Generous Motors by the workers because you got a pension, you had health care and if you got that job out of high school, you were good for 30 years or 40 years.

HILLIARD: What used to be happened is that people with marginal or even exceptional abilities could go to General Motors and make a living for their family, put their kids in school, well, there's no opportunity for that here.

KING: That's kind of scary, isn't it?

(UNKNOWN): Very scary. I'm a teacher and so I think about what do our kids need to prepare for the future and it is a scary thing.

KING: You think it's going to get worse before it gets better?

(UNKNOWN): That's what they're saying.

KING: Is that what you see here?

(UNKNOWN): I do. Just in local and state news, think so.

KING: I assume you all know somebody who's lost a job in this community in the last few years?

HILLIARD: Oh yeah.

KING: Everywhere?

HILLIARD: People who haven't lost their jobs, but they own a business, a small business, like a place like this, they're suffering. It's, it's -- I've got lots of friends who are absolutely don't know what to do right now.

HARMON: I'm kind of excited because in general, a big change going on and it has to.

KING: So you think the economy needs the shock?

HARMON: Oh, god, yes.

(END VIDEOTAPE)

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