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President Obama: Budget Plan Makes 'Hard Choices'; Raising Taxes on Wealthy; Interview With Governor Tim Pawlenty

Aired February 26, 2009 - 15:59   ET


WOLF BLITZER, CNN ANCHOR: Happening now, budget ambition. We're dissecting the president's new $3.6 trillion tax and spending plan. Supporters raving it reflects America's values; critics complaining it's a blueprint for class warfare.

Also this hour, a new campaign to yank the president's party to the left, a Democrat's plan to target some fellow Democrats in congressional elections next year.

And Hillary Clinton steps into a heartbreaking international custody battle -- a father desperate to be reunited with his little boy abducted to Brazil four years ago.

I'm Wolf Blitzer. You're in THE SITUATION ROOM.

President Obama says his first budget blueprint is ushering in a new era of responsibility. It sets big goals, including improving the economy and overhauling health care. But Republicans argue it puts a dangerous new burden on wealthy taxpayers and on the federal deficit, which would balloon to a record high this fiscal year.

Let's go to the White House. Our correspondent Dan Lothian is all over this new budget blueprint.

What do you have, Dan?


Well, this is that budget blueprint. The full budget will come in mid to late April. Now, in delivering the budget today, the president said that he's adding to the deficit in the short term in order to help American families who are struggling and try to turn the economy around.


LOTHIAN (voice-over): This is the CliffsNotes version of the federal budget, a roughly 140-page summary of how the government plans to spend 3.5 trillion taxpayer dollars.

BARACK H. OBAMA, PRESIDENT OF THE UNITED STATES: This budget is an honest accounting of where we are and where we intend to go.

LOTHIAN: The budget includes investments in renewable energy, education, and health care -- $46 billion for education, $26 billion for energy, and $634 billion for a health care reserve fund aimed at overhauling the system. Add to all this, the president wants to cut the projected $1.7 trillion deficit in half by the end of his term.

So how does the administration plan to make all this math add up? Budget director Peter Orszag says by closing corporate tax loopholes, winding down the war in Iraq, making government more efficient, and getting rid of tax cuts for people making more than $250,000. The administration is also planning to cut or phase out some programs some subsidies for wealthier farmers.

PETER ORSZAG, BUDGET DIRECTOR: There's not a single line in the budget that won't have someone who cares about it very strongly. And yet, if we allowed those -- all of those lines to persist and grow over time, we would wind up with a fiscal crisis.

LOTHIAN: But critics call this budget blueprint wealth redistribution.

This is how the White House responded to that...

ROBERT GIBBS, WHITE HOUSE PRESS SECRETARY: The president campaigned on explicitly promising that he would cut taxes for 95 percent of working Americans if he was elected president. The president believes that we have a plan that will lead to long-term economic growth.


LOTHIAN: In the budget, the administration has left room for them to go to Congress and tap an additional $750 billion. The president's budget director is saying that they see no plans right now to use it, but they want to have it there just in case -- Wolf.

BLITZER: All right, Dan. Thanks very much.

Let's go to Capitol Hill, the other end of Pennsylvania Avenue. Our senior congressional correspondent, Dana Bash, is standing by.

The Democrats obviously loved it. The Republicans, not so much -- Dana.


Look, anybody out there who was wondering what the election really meant in terms of change in Washington, this budget is Exhibit A. It certainly has very different spending priorities and a different view about the role of government. As you said, Democrats are cheering that. Republicans, not so much.


BASH (voice-over): The president's budget director made a personal delivery to Capitol Hill. A photo-op for the cameras, but also a reminder that Congress will decide the fate of President Obama's ambitious agenda.

Lucky for him, fellow Democrats are in charge. REP. NANCY PELOSI (D-CA), HOUSE SPEAKER: At long last, a budget that is a statement of our national values, as a federal budget should bet.

BASH: Congressional Democrats are especially eager to fulfill a major campaign promise -- pay for their priorities by repealing President Bush's tax cuts for the wealthiest Americans. For example, couples making $250,000 a year and individuals making $200,000 will see their tax rate go up from 36 percent to 39.6 percent. That would get the government an estimated $310 billion.

PELOSI: It's about ending a tax cut which should not have been there in the first place that contributed enormously to our deficit.

BASH: But Republicans standing on the other side of the deep philosophical divide argue it will cripple small business owners.

UNIDENTIFIED MALE: The notion that you raise taxes on the people who are most likely to create jobs in a recession, it just boggles our mind that they would actually try and pursue this sort of an economic agenda at this very time.

BASH: Republicans are also blasting the president's budget for not doing enough to cut spending.

REP. JOHN BOEHNER (R), MINORITY LEADER: The era of big government is back, and Democrats are asking you to pay for it.

BASH: In fact, although Mr. Obama warned Congress about making tough choices to lower the deficit, his budget boosts government spending in many areas. Most for transportation, housing, energy, the environment, education, and most of all, for the president's plan to overhaul the health care system.

MAYA MACGUINEAS, COMMITTEE FOR A RESPONSIBLE FEDERAL BUDGET: They're really not controlling spending any way that you would like to see it over the long term.


BASH: The president's budget does have some spending cuts, things like subsidies for farms and agri business, and also a managed care -- Medicare plans, things like that. Also, they do hope to get some money back in the Treasury, Wolf, in hopes to bring those troops -- at least a lot of them -- back from Iraq and some money there.

BLITZER: As we know, this president's a very, very busy guy. He's going to North Carolina, Camp Lejeune, tomorrow. We expect he's going to be talking about troop levels in Iraq, and there's already reaction coming in from the Hill.

What's the latest?

BASH: That's right. You know, there actually is an official briefing at the White House for members of Congress on what exactly President Obama's plans are, but already, Wolf, we are hearing not very exciting and positive responses from the president's idea of keeping -- at least reports say -- keeping 50,000 troops in Iraq.

Let me read you a couple of quotes from the top Democrats in the Senate. First of all, the top Democrat, Senate Majority Leader Harry Reid. He said, "That's a little higher than I expected."

And Chuck Schumer, also in the Democratic leadership, he said, "Fifty thousand is more than I would have thought."

This is certainly coming from a lot of Democrats here. They seem a little bit surprised, Wolf, about the fact that, although President Obama and Democrats pledged to take troops out of Iraq, that 50,000 apparently are going to stay in Iraq. And I can tell you, John McCain, who, of course, ran against Barack Obama, he also told our Ted Barrett -- he said he wants the American people to realize that 50,000 advisers, that's a lot of people who are going to be in harm's way.

BLITZER: That's after the so-called 19-month combat withdrawal period, those who would remain beyond that so-called 16 to 19 months.

BASH: Exactly.

BLITZER: All right, Dana. Thanks very much.

Let's go to Jack Cafferty right now. He has "The Cafferty File" -- Jack.

JACK CAFFERTY, CNN ANCHOR: The House of Representatives passed a $410 billion spending bill. It is loaded with pork, courtesy of both parties.

"The New York Times" reports one watchdog group says the bill includes $8 billion for more than 8,500 pet projects. Among them are these: $1.7 million for a honey bee laboratory in Texas; $1.5 million for work on grapes and grape products, including wine -- this is my favorite -- $1.8 million to research swine odor and manure management in Iowa. They could do the same research in Washington, D.C.

Smaller-ticket items include asparagus research in Washington State; wool research in Montana, Texas and Wyoming; rodent control in Hawaii; and on and on and on.

Democrats earmarked about $40 million for the presidential libraries of FDR, John Kennedy and Lyndon Johnson. The bill even include earmarks requested by some lawmakers who are no longer members of Congress.

Republicans pounced on the bill as wasteful, pointing out it comes just after the White House held that summit on fiscal responsibility. Democrats point out 40 percent of all the earmarks are things that were requested by Republicans.

Democratic Congressmen David Obey of Wisconsin defended these earmarks, saying that they were fully disclosed and a small part of the overall bill. And he added that without them, "... the White House and its anonymous bureaucrats would control all spending." House and Senate Democrats have already agreed on this bill, although Republican senators could try to cut out some of the pork when it gets debated in the Senate.

As for the White House, one official says, "It's a big document and we're still reviewing it."

Here's the question: Are earmarks a necessary evil or just plain evil?

Go to You can post a comment on my blog.

BLITZER: The president's going to have to make a major decision, as you know, Jack. Does he sign it into law, or does he veto it and tell members of Congress, go back to the beginning and get me something I like? It's not going to be easy decision for him, as you know.

CAFFERTY: That's why he gets the big bucks, Wolf, like you.

BLITZER: Thanks.

Jack Cafferty.

A number of Republicans in Congress are trashing the president's new budget plan. Are GOP governors following their lead? I'll ask a Republican rising star, the Minnesota governor, Tim Pawlenty, if Mr. Obama has his priorities straight.

Plus, when it comes to Americans' views of war, is Afghanistan the new Iraq? We have some new snapshots of public support and hopes for victory.

And new friction within the presidential party. Some liberal groups right now, they're beginning to put pressure on some more conservative Democrats to put them on notice. Vote with us, they say, or else.

Stay with us. You're in THE SITUATION ROOM.


BLITZER: The White House says the president's budget plan is one Americans can be proud of. Critics, however, deride it as a plan to simply tax and spend the nation back to prosperity, if at all.

Joining us now is the Republican governor of Minnesota, Tim Pawlenty.

Governor, thanks for coming in.


BLITZER: All right. Here's what the president said today when it comes to his very ambitious plan to deal with health care reform.

Listen to this.

(BEGIN VIDEO CLIP) OBAMA: With this budget, we are making an historic commitment to comprehensive health care reform. It's a step that will not only make families healthier and companies more competitive, but over the long term, it will also help us bring down our deficit.


BLITZER: He's setting aside hundreds of billions of dollars over the next decade to try to achieve that goal. Is he right?

PAWLENTY: Well, health care, of course, is one of the driving forces for all of our budgets -- school districts, counties, state governments, families and businesses, Wolf. But the direction he's headed, if it was like he proposed during the campaign, is a very government-centric approach, when I think the better approach would be to give people good information about price and quality and give them financial incentives to use the system wisely. And we're doing that in Minnesota in many ways, and it's working. That would be a better approach than having our government take over our government-centric approach.

BLITZER: But do you agree in principle that the current situation, where there are tens of millions of Americans without any health insurance, others who have health insurance who are worried about losing it, and worried that if they ever get sick, it's not going to be enough to help them, are you basically in agreement with him that the current system needs dramatic overhaul?

PAWLENTY: Absolutely. We're in agreement. We differ on perhaps the solution or the prescription for change, but the diagnosis of the problem, it's going to bankrupt us all if we don't slow it down, is absolutely correct.

BLITZER: He also wants a new energy tax. And I want you to listen to how he explained that.

Listen to this.


OBAMA: Because our future depends on our ability to break free from oil that's controlled by foreign dictators, we need to make clean, renewable energy the profitable kind of energy. That's why we'll be working with Congress on legislation that places a market- based cap on carbon pollution and drives the production of more renewable energy.


BLITZER: Good idea?

PAWLENTY: We want to do things to clean up the environment, Wolf, but we don't want to wreck the economy. So those two things are going to have to be in balance as we address the carbon issue. There's lots of different ways to do that that do not necessarily result in an increased energy burden or an increased cost on businesses.

BLITZER: How would you do it?

PAWLENTY: Well, one way to do it is to promote encouraging people to do things wiser and better, not prohibiting things or taxing them. For example, one of the big contributors to greenhouse gas emissions is vehicles. So instead of taxing people for carbon emissions, let's work on getting better technology in our cars like plug-in electrics.

China is leaping ahead of us in that regard, both in terms of cost and potential timelines. We should be putting money into research and commercialization. The results of that research as a way to address climate change.

BLITZER: He says he was dealt a pretty miserable hand by the previous administration as far as the economy is concerned.

Listen to this.


OBAMA: Having inherited a trillion-dollar deficit that will take a long time for us to close, we need to focus on what we need to move the economy forward, not on what's nice to have.


BLITZER: The decisions that he makes are clearly priorities, from his perspective, but what's the biggest complaint that you have about the budget blueprint he put forward today?

PAWLENTY: Well, I think it is illustrated by this memory, and it's one that troubles me still. Secretary of State Hillary Clinton was in China recently on rhetorical, bended knee, pleading with the Chinese to continue to buy our debt. The federal government is constructing a debt crisis that is going to be like the mortgage crisis in the not-too-distant future.

This is a house of cards, Wolf, that if we don't slow it down and control of it, it's going to be a major problem. And to have President Obama and Congress consider taking the deficit up to $1.75 trillion, the largest amount as a percent of GDP, I think, since World War II, and then say they're going to cut it in half after doubling it, that worries me greatly. And we're on an unsustainable path.

BLITZER: The Democrats will come back, and you know what they'll say. They'll say, Governor Pawlenty, where were you during the eight years of the Bush administration? When he took office, the national debt was around $5 trillion. He left office, it was approaching $11 trillion. It doubled over those eight years, and six of which he was not only in charge of the White House -- also, the Republicans were in charge of both houses of Congress.

Where were you then?

PAWLENTY: Yes, I've said this publicly. I'll say it again here on THE SITUATION ROOM.

It doesn't matter whether we sent Republicans or Democrats to the White House or Congress. This general trend has existed and it continues.

The only way we're going to get control of this is to have a requirement like most states have to balance the budget, with the exception of emergencies like war. We cannot trust folks going to Washington, promising to reduce the debt or the deficit. We've had too much history that shows they can't, they won't. The only way to do it is to have a device like I just described to force it.

BLITZER: Governor Pawlenty, thanks for coming in.

PAWLENTY: You're welcome.

BLITZER: If it sounds like fuzzy math, we'll help you understand the numbers a little bit better. What exactly does President Obama's massive budget mean to you? Our own Ali Velshi, he's standing by to break down the numbers.

And it's among every parent's worst nightmare -- your child abducted by the other parent. Right now, Secretary of State Hillary Clinton is stepping into a bitter custody case that's sparking international outrage.

Stick around. You're in THE SITUATION ROOM.



BLITZER: To our viewers, you're in THE SITUATION ROOM.

Happening now, President Obama unveils his $3.5 trillion budget. And we're talking to the man behind the plan, the president's budget chief, Peter Orszag. He's standing by live. He'll join us, telling us what's the most important thing we need to do right now to heal this ailing economy.

Somber journey home. The coffins of U.S. service members killed in the line of duty. For nearly two decades, photos of the flag- draped caskets have been off limits, but now that decision will be up to the loved ones of the fallen.

And under investigation. A university of Florida professor, he's suspected of receiving millions of dollars from NASA and federal agencies and taking some of the money for himself.

I'm Wolf Blitzer. You're in THE SITUATION ROOM.

It's a plan to spend over $3 trillion, in part to cut a nearly $2 trillion projected deficit.

Let's get some more now on our top story. The president's budget also hopes to make investments in renewable energy, education and health care.

Joining us now is our chief business correspondent, Ali Velshi.

Ali, I guess the bottom-line question is this: Is this budget a road to recovery?

ALI VELSHI, CNN SR. BUSINESS CORRESPONDENT: Well, it's really a change in policy. You know, ultimately, Wolf, in a perfect world, the budget is a reflection of what the policies of the administration will be, and the policies of the administration are a reflection of what Americans voted for. So this administration is talking about spending more money on education and on health care and alternative energy, and less on defense.

But here's the problem. This is going back to 1980. We're in a deficit. This is going to be a $1.7 trillion deficit.

That means you add up all these deficits, and you've got the national debt, which is almost $11 trillion. Take a look at our history of deficits, all those red lines.

Only for four years in the late '90s, early 2000s, did we have surpluses. And when you have surpluses, you move toward paying off your national debt. But since then, since 2001, mainly because of the war in Iraq and other spending policies, we've started to get into deficits.

Take a look right at the edge of the screen there, the last one. That's the deficit that we're talking about right now.

They are multiplying dramatically. And that's part of the problem. So there are only a few ways to deal with the deficit.

If you're spending more money than you're taking in, Wolf, what can you do? You can cut your expenses, and there's some of that in this budget, or you can increase your revenue. And to do that, you have to count on things getting better.

You have to count on more people being employed, about businesses doing better so that they pay taxes. And that's how the government -- its coffers. And there's some estimation in this that jobs will improve, and that there will be some sort of economic recovery, but that's a big "if," Wolf. So if it doesn't happen, we're going to see those deficits growing and our national debt growing.

BLITZER: Because their projection is that next year, the economy will be back 3, 4 percent growth...


BLITZER: ... and it will stay at 4 percent for the years that follow. Is that an overly rosy scenario?

VELSHI: Well, you know earlier this week, Ben Bernanke was testifying at Congress, and he said that if all goes well -- and I'm not sure why he said that, because all hasn't gone well for over a year now -- but if all goes well, we could see the end of this rescission this year, 2009, and recovery in 2010. That's very interesting.

It's a rosy scenario, but there are some very smart economists who say it could happen. That means that we see the worst of unemployment this year, we start to see months where we're still losing jobs, but losing fewer than the 600,000, for instance, that we lost in January.

And if that happens, ultimately, Wolf, more than anything else, this is about jobs. If Americans are working and feeling confident about their futures, and maybe about their home prices and maybe about their 401(k)s and IRAs, they will reengage in this economy and we could see recovery. Recovery will come, Wolf. It's just a matter of how much further down we have to go and how much longer we have to wait -- Wolf.

BLITZER: When we reach rock bottom and then it begins to pick up.


BLITZER: All right, Ali. Thanks very much.

We also have some new snapshots of unemployment in these dire economic times -- 667,000 people filed for claims for jobless benefits for the very first time last week alone. That's the highest figure since the week ending in October 2nd of 1982, when 695,000 people filed first-time claims. Right now, over five million people are filing for unemployment benefits every week in this country. That's the highest number since the Labor Department began keeping these kinds of records, and that was back in 1967.

The global economic meltdown also now raising serious fears of how all this could impact the nation's national security.

Let's go to our Pentagon correspondent, Barbara Starr.

There's new estimates coming in all the time, and there's deep concern, Barbara.


Just starting this week, President Obama is taking new steps to look at the economic crisis as a national security crisis.


STARR (voice-over): Last year, more than 5,000 Mexicans died in drug-related violence, victims of rampaging drug cartels. It couldn't come at a worse time. Mexicans are suffering the effects of the U.S. recession, and it is a threat to U.S. security.

ADMIRAL MICHAEL MULLEN, JOINTS CHIEFS CHAIRMAN: Mexico is certainly more of a concern to me, that -- certainly with the deaths, the drug issues, the kinds of things that we have seen grow dramatically over the last year.

STARR: The emerging economic crisis has moved beyond just financial concerns. President Obama, this week, began receiving daily briefings from the intelligence community on the national security threat.

The director of national intelligence says, it's a major worry.

DENNIS BLAIR, DIRECTOR OF NATIONAL INTELLIGENCE: Europe and the former Soviet Union bloc have experienced anti-state demonstrations. Much of Eurasia, Latin America, and sub-Saharan Africa lack sufficient cash reserves and access to international aid.

STARR: Growing concern that governments could fall, violence could rise, and nations fight over oil, food and water. Already, U.S. military officials say there are reports some Russian military units are short of food and not being paid. Falling Russian oil revenues mean less cash for the Kremlin -- China's rising unemployment rate another worry.

JOHN MCLAUGHLIN, CNN NATIONAL SECURITY ADVISER: Economic turmoil in China would probably lead to rising unemployment. That, in turn, would raise the possibility of protests. Protests, in turn, would raise the possibility of a crackdown by the military and security authorities. And that, in turn, would confront the United States with all kinds of difficult dilemmas in its dealings with China.


STARR: Now, another country that is always a concern here is of course Pakistan. So, is there any silver lining for U.S. national security?

Oddly enough, Iran may be just that -- the U.S. intelligence community beginning to speculate that President Ahmadinejad may not get reelected this year, because the Iranian people are so dissatisfied with how their economy is being run -- Wolf.

BLITZER: Wouldn't bring any tears on this part of the Atlantic, to be sure.

Thanks very much for that, Barbara Starr.

Meantime, in terms of security, many of you are very concerned about what's happening in Iraq and Afghanistan. And we have some brand-new poll numbers coming in to THE SITUATION ROOM right now.

Our senior political analyst, Bill Schneider, is joining us.

Here's the question, Bill. How does the American public view the wars in Iraq and Afghanistan?

WILLIAM SCHNEIDER, CNN SENIOR POLITICAL ANALYST: Wolf, two different wars, two different opinions.

(BEGIN VIDEOTAPE) SCHNEIDER (voice-over): The American public is ready to declare victory in Iraq and go home.

BARACK OBAMA, PRESIDENT OF THE UNITED STATES: And I will soon announce a way forward in Iraq that leaves Iraq to its people and responsibly ends this war.

SCHNEIDER: Half the public now believes the United States is winning in Iraq, the highest number in nearly five years. But that has not changed their view of the war. Two-thirds still oppose the war. That number is unchanged. More than two-thirds want President Obama to remove most U.S. troops. What about the war in Afghanistan?

OBAMA: We will forge a new and comprehensive strategy for Afghanistan and Pakistan to defeat al Qaeda and combat extremism.

SCHNEIDER: Far fewer Americans believe the United States is winning the war in Afghanistan, 31 percent, compared to 50 percent in Iraq.

But there is more public support for the war in Afghanistan, nearly half the public, compared to fewer than a third who favor the war in Iraq.

REP. NANCY PELOSI (D-CA), SPEAKER OF THE HOUSE: But Afghanistan cannot be allowed to be a safe haven for terrorists to launch attacks against the United States. Everybody has known that since 9/11.

SCHNEIDER: Actually, Democrats oppose the war in Afghanistan by nearly 2-1. They're asking, what's our strategy there? We don't want another Iraq.

REP. EDWARD MARKEY (D), MASSACHUSETTS: We're seven-and-a-half years late in putting together a comprehensive strategy.

SCHNEIDER: President Obama has said he will send 17,000 more U.S. troops to Afghanistan. Does the public support that? Yes, including nearly 60 percent of Democrats. Democrats are apprehensive about Afghanistan, but they are willing to give their president the benefit of the doubt.


SCHNEIDER: The public is weary of the war in Iraq and wary of the war in Afghanistan -- Wolf.

BLITZER: Good point.

Thanks very much, Bill Schneider.

Some prominent liberal groups are joining forces to pressure some congressional Democrats to support their causes. Their message is this: Move to the left, or we will try to force you out.

The top House Republican accuses President Obama of bringing the era of big government back. The budget battle, that is coming up in our "Strategy Session."

And, later, an expensive fleet of new U.S. fighter jets in possible peril right now, along with thousands of jobs. We will tell you what's going on -- right here in THE SITUATION ROOM.


BLITZER: A major vote on voting rights for the District of Columbia just occurred.

Let's go to Brianna Keilar, our congressional correspondent.

What happened, Brianna?

BRIANNA KEILAR, CNN CONGRESSIONAL CORRESPONDENT: Wolf, this vote just passed the Senate with one to spare, 61 to 37. It would give a voting representative in the House of Representatives to Washington, D.C. It would also give another representative in the House to Utah -- D.C., of course, a Democratic stronghold, Utah, a Republican.

But it's really the D.C. voting right issue that is controversial here. Right now, the District has a non-voting delegate, Eleanor Holmes Norton. She can speak on the floor. She can serve on committees. But when it comes to a final vote on things like the economic stimulus or issues pertaining to the war in Iraq, even the D.C. budget, she does not have a vote.

So, what is expected to happen next is, this will go through the House, but it's expected to handily pass the House. This was really the test today. There are a lot of opponents of this measure, conservative opponents, though, who say that it's unconstitutional, that the Constitution only gives voting representation to states, and D.C. isn't a state, and that the framers of the Constitution intended for D.C. to be this neutral ground.

On the other hand, proponents say D.C. should have a voting representative. Bottom line here, Wolf, this is not the end for us. It's expected, ultimately, to be signed into law by President Obama and end up in the courts, possibly all the way to the Supreme Court.

BLITZER: In the meantime, a major victory, though, for people here in Washington, D.C.

Brianna, thanks for bringing us that late-breaking development.

A powerful new coalition of liberals groups launched today -- its main goal, to pressure conservative Democrats to move to the left or pay a price in upcoming congressional elections.

Let's bring in our national political correspondent, Jessica Yellin, to explain.

What is going on?

JESSICA YELLIN, CNN CONGRESSIONAL CORRESPONDENT: Wolf, you know, some Democrats like to say they can be their own worst enemies. Well, now a liberal group of Democrats is organizing and raising money to target some of their own. They say they're worried about keeping certain Democratic members of Congress honest.


MARKOS MOULITSAS, FOUNDER, DAILYKOS.COM: If you're an elected official and you're representing your constituents, you have nothing to fear.

YELLIN: That's Markos Moulitsas, the founder of "The Daily Kos." He's one of the most powerful liberal bloggers and a leader in the progressive movement.

Moulitsas is worried about his own party. And he's warning Democratic lawmakers not to be influenced by powerful corporate lobbyists.

MOULITSAS: This whole town is a sort of incumbent protection racket.

YELLIN: Now he's teaming up with other progressive bloggers, as well as several liberal groups and a powerful union, to keep congressional Democrats honest. His plan, raise enough money to support liberal challengers who have a good shot at taking down certain incumbent Democrats in next year's primaries.

The group dismisses charges that they're hurting their own party, which, for the first time in 14 years, controls Congress and White House.

JANE HAMSHER, FOUNDER, FIREDOGLAKE.COM: A healthy primary market within the Democratic Party, we think it's good for the people and we think it's good for the party.


YELLIN: Now, the Democratic National Committee has no comment. And the political arm for House Democrats says, look, they're just committed to electing more Democrats to the House. Wolf, this is just a headache the Democrats do not need.

BLITZER: We will watch closely. Thanks, Jessica, very much. Fascinating.

An international custody battle leaves a father offering some tough explanations to his long-lost son -- the heartbreaking details ahead and how Secretary of State Hillary Clinton is now getting involved.

And inside a meeting of conservatives. One former GOP presidential candidate takes aim at another.

Stick around. You're in THE SITUATION ROOM.



OBAMA: Just as a family has to make hard choices about where to spend and where to save, so do we as a government. There are times where you can afford to redecorate your house, and there are times where you need to focus on rebuilding its foundation.


BLITZER: The president of the United States unveiling his budget blueprint earlier today.

Let's talk about what is going on in our "Strategy Session." Joining us now, our CNN political contributor the Democratic strategist Hilary Rosen, and Terry Jeffrey. He's the editor in chief of the Cybercast News Service.

He keeps saying, Terry, he's inherited a huge mess, more than a trillion-dollar deficit, the former Republican president left him, and he's trying to dig the U.S. out of it.


just before I came out here, I used that excellent computer you have in your green room, pulled up on the Congressional Budget Office Web site their data on the deficit. According to CBO, in fiscal 2008, the largest deficit Bush ever ran for this year, $454.8 billion.

OK. Obama voted for the $700 billion bank bailout. Now he wants to add $250 billion to it. He pushed through a $787 billion stimulus plan. On Monday, he said we were going to have the deficit -- deficit in this fiscal year of $1.3 trillion. Now his administration is talking about a $1.75 trillion. And he says, when he wants to cut the deficit in half, Wolf.


BLITZER: But, Terry -- but, Terry, hold on.


JEFFREY: It will be $533 billion. That's more than any deficit Bush ever ran.

BLITZER: But, Terry, in the final days of the Bush administration, they themselves said they were leaving him a more than trillion-dollar deficit.

JEFFREY: Wolf, I think, on this program, I was often critical of George Bush, his big government programs, his deficits. There's no doubt, but $454 billion, according to the Congressional Budget Office, is the biggest deficit Bush...


BLITZER: But they were projecting more than a trillion-dollar deficit that they were leaving him.

But hold on a second, because I want Hilary to get involved in this discussion as well.

The Republican leader in the House, John Boehner, he reacted this way to the president's blueprint.


REP. JOHN BOEHNER (R-OH), HOUSE MINORITY LEADER: But if you begin to look at what's happened over the last month and what's being proposed in this budget, the president's beginning to make President Bush look like a piker when it comes to spending.


BLITZER: All right, that's -- is that a fair and accurate assessment?

HILARY ROSEN, CNN POLITICAL CONTRIBUTOR: I'm trying to figure out what the Republicans' problem is here. Is it really -- is it the deficit or is it that actually we're now going to start investing in things that they didn't invest in for so many years, energy independence, education, health care?

When you talk to business leaders about why they're in trouble, why they laying off people, while they -- why they're not creating jobs, they -- they don't talk about deficits and high taxes. What they talk about is, our health care costs are too high. Our energy costs are too high.

What Barack Obama is saying in the big picture here...


ROSEN: ... is, we have to tackle these issues, and we have to do it through investment.

BLITZER: But you will remember this. In 1993, when President Clinton came into office, the deficit was a lot worse than he had thought during the campaign. As a result, he scaled back a lot of his ambition. he didn't go forward with the middle tax -- middle-class tax cut which he proposed, saying, look, it's -- the economy's a lot worse than it was during the campaign, which is true.

The economy right now is a lot worse than it was during the campaign. Should President Obama be scaling back his ambitious agenda, in the face of these realities?

ROSEN: Well, in a couple of key areas, we're going to grow our way out of that spending. So, a majority of the health care is going to be paid for by savings.

And this is another opportunity out of the Clinton playbook. When you look at the tax cuts, the -- letting the tax cuts expire that George Bush put in, we're actually going to go back to the Clinton- level tax rates. And those years brought us 22 million new jobs and -- and long prosperity.


JEFFREY: Earlier in this program, if I understood you correctly, Wolf, I think you said that this Obama budget is anticipating 4 percent growth in our economy in the years out after this year.


BLITZER: It's 3.5 percent next year, 2010, 4 percent 2011 and 2012. That's their working -- that's their working assumption.


ROSEN: It's a modest number.

JEFFREY: I say this is a contradiction, because, elsewhere, President Obama's asking for transformational change in the relation of the government to our economy, because he said we could have a protracted economic downturn.

Now, when he's proposing a budget which shows record increase in government spending, they're talking about 4 percent growth, when they're saying they're only going to get our deficit down, under 4 percent growth, Wolf, to $533 billion in fiscal year 213...

BLITZER: 2012.

JEFFREY: ... 2012 -- which is 20 percent bigger than the largest deficit Bush had before this year.

ROSEN: First of all, they're not talking about that growth this year or next year. They're talking about that growth in terms of long-term recovery.

BLITZER: No, no, they're talking this year -- they're talking about 3 percent in 2010. This year, they expect it to continue pretty miserably.


ROSEN: And the other thing that they're doing is, they're not engaging in the trickery of the last administration by hiding spending...

JEFFREY: Well, yes, they are.

ROSEN: ... like with the war and other things.


ROSEN: What they're saying is, we're going to put this all on the table and we're going to halve that deficit at the -- by the end of this first term.

JEFFREY: In the calculations of Obama's deficit, he's talk about robbing the Social Security trust fund of all the surplus Social Security taxes.

But look at this. You know, if we're talking about -- if we're going to be spending all this money in deficit, and adding to the deficit, we're talking -- and we're going to have growth next year, the recession is over, only about a quarter of that stimulus money, Wolf, is going to be spent in this fiscal year. Obama is telling us, next year, we don't have a recession.

BLITZER: Hold on. Make a quick point, because then I want to move on.


ROSEN: Well, I think the point is that this argument over the deficit is sort of irrelevant. In the last 20 years, we have had large deficits. We have had smaller deficits. It's not the only factor of what creates jobs.

What business is saying and what middle Americans are saying is, we want to pay fewer taxes and we need investment in critical areas.

BLITZER: All right.

ROSEN: That is what the president is doing.

BLITZER: I want to pick your brain on the Republican -- on the conservative movement right now.

Mike Huckabee, the former Arkansas governor, former Republican presidential candidate, he said this over at a conservative convention going on in Washington.


MIKE HUCKABEE (R), FORMER ARKANSAS GOVERNOR: With all due respect, Senator McCain dramatically suspended his campaign, flew back to Washington, not to champion those congressional Republicans, but to join, meekly, Barack Obama in voting for the bailout, a bailout that most Americans opposed.


BLITZER: All right, what do you think about that? He's going after McCain, Huckabee?

JEFFREY: Well, he's right on target. That was the biggest mistake of the McCain campaign.

If he had come back, if he had opposed that bailout and explained why it was wrong, I think he had a chance of winning. Instead, McCain said in that last debate he wanted to pay off people's mortgages. He sounded like Obama on the fundamental economic issues in the endgame of the campaign. Wrong on substance, wrong politically.

BLITZER: Well, tensions within the Republican ranks, as well, guys. ROSEN: That's right.

BLITZER: Not just the Democratic ranks.


BLITZER: Appreciate it.

A very personal and painful child custody battle becomes a concern for the State Department. Stand by for the gut-wrenching story of a father fighting to be reunited with his young son.

And, later, Americans once again will see war dead in a way they haven't been able to see them for years.

And a college professor and his wife accused of committing fraud against NASA and costing the space agency thousands of dollars.

We will tell you what is going on -- right here in THE SITUATION ROOM.


BLITZER: Most child custody battles are often very painful, but one is playing out right now that is shocking in many ways. And it's creating some sort of international incident in the process.

Let's go to CNN's Deborah Feyerick. She's working the story for us.

What -- what is going on, Deb?

DEBORAH FEYERICK, CNN CORRESPONDENT: Well, Wolf, you know, this is every parent's worst nightmare. You send your family off on vacation with a kiss and a wave, expecting everyone to be back in a few days. Then your life comes crashing down, and you're left searching for your child.


FEYERICK: So, four months before his abduction, you had taken him to Disney. You had no idea anything was wrong?

DAVID GOLDMAN, FATHER: No. We're on a family vacation.

FEYERICK (voice-over): The last thing David Goldman said to his 4-year-old son, Sean, as he waved goodbye at the airport was:

GOLDMAN: "I love you, and I will see you soon."

FEYERICK: But Sean never came back. Goldman says his wife took their child to her family to Brazil on vacation, never intending to come home, warning Goldman not to go to police and threatening, if he did:

GOLDMAN: I would never see my son again, and spend all my money trying. And, so far, she's right.

FEYERICK: According to the State Department, more than 3,000 American-born children have been abducted by a parent and taken to another country. Of those, 66 are being held in Brazil, in direct violation of international treaty.

BERNARD ARONSON, FORMER ASSISTANT SECRETARY OF STATE: Brazil has actually been one of the worst violators of the treaty.

FEYERICK: Then, in a strange twist, late last summer, Goldman's estranged wife died giving birth to a daughter by her new husband.

(on camera): Did you think it was your chance to get your son back?

GOLDMAN: Yes. I -- I believed that -- that he would be coming home, and we would finally be able to reunite.

FEYERICK (voice-over): Instead, a Brazilian family court judge granted custody to the new husband.

GOLDMAN: To allow a man with no blood relation to keep another parent's child is against their own laws, national laws, let alone international and American laws.

FEYERICK: Recently, Goldman was able to visit his son in Brazil for the first time since he last saw him in four years. And though Sean is now 8, Goldman says the bond is strong.

GOLDMAN: He asked me where have I been for this amount of time, how come I never came to visit him.

FEYERICK (on camera): So, he didn't know that you were looking for him, that you were trying to get him back?

GOLDMAN: Apparently not.

FEYERICK: That's got to break your heart.

GOLDMAN: Yes, it did.

FEYERICK (voice-over): U.S. Secretary of State Hillary Clinton met with Brazil's foreign minister Wednesday -- a senior State Department official telling CNN Sean's case was the first thing they talked about.

Asked if he's angry, David Goldman says he has no time for that.

GOLDMAN: My focus is to do what I can by every legal means and all matters of law to reunite with my son and bring him home.


FEYERICK: Now, we did attempt to get a comment from Brazilian officials and lawyers for the wife's family, without success. But, prior to her death, the wife had argued in court that the boy was happy and attending good schools. State Department officials do tell us that they are trying to work this out behind the scenes. But, right now, it's in the court system, and, so, that's the wild card -- Wolf.

BLITZER: Heartbreaking story, indeed.

All right, Deb, thank you.

Let's go back to Jack. He has "The Cafferty File" -- Jack.

JACK CAFFERTY, CNN ANCHOR: Wolf, the question this hour is, are earmarks a necessary evil or are they just plain evil?

S. in Michigan: "It depends on what ends up being called an earmark and who labels it as such. For the state or city getting the money, it is progress money or an investment. For others, it becomes pork, or an earmark, et cetera. For example, for Bobby Jindal, the governor of Louisiana, monitoring volcanoes is an earmark, but, for Alaskans, monitoring hurricanes may be earmarks. So, should we stop doing both?"

Kevin writes: "Earmarks can be wasteful or incredibly valuable, just like any type of spending. Let's look at one of your examples: $1.7 million for honeybee research. This seems silly at first glance. But when you recall that there appears to be something wiping out the honeybee population, and that these bees are necessary for crops, like apples, peaches, soybeans, pears, pumpkins, cucumbers, cherries, raspberries, blackberries, and strawberries, then it quickly starts looking like maybe we ought to be spending more money on this research."

Susan in Idaho: "If earmarks are necessary, we better change the way we do business in all levels of politics. The time for responsible spending is way past due. Pet projects are taking food away from the hungry and jobs away from those who, by no fault of their own, have lost them."

Ed in Iowa writes: "Here in Iowa, we're sure in need of some swine odor and manure management. And I can tell you that for darn sure, since I live downwind to several hog farms. What you don't understand when you make fun of this is that it's a huge problem. Pigs are big business here. Their manure could be used for fertilizer and biofuels, instead of just polluting the air and the water. It is a smart investment that will pay off in clean air, clean water, cheap food, and jobs."

And B.D. in Boise, Idaho: "The 40 percent that the Republicans want are pure evil. The 60 percent that the Democrats want are absolutely necessary. Or is it the other way around? We're handing out so much money these days, it is easy to forget which side of the aisle you're really on."

If you didn't see your e-mail here, you can go to my blog,, and look for yours there, among hundreds of others -- Wolf.

BLITZER: Good idea, Jack. Thank you.

To our viewers, you're in THE SITUATION ROOM.