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STATE OF THE UNION WITH JOHN KING

Interview With Peter Orszag; Interview With Eric Cantor

Aired March 8, 2009 - 09:00   ET

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


JOHN KING, HOST: I'm John King. This is our "State of the Union" report for this Sunday, March 8th.

The recession deepens. More than 600,000 jobs gone in just one month. In the face of a worsening economy, can President Obama afford his ambitious agenda on energy and health care? We will ask the man in charge of the country's budget, Peter Orszag.

But what about the people struggling to find work? Not everyone thinks the president's plan will create jobs. The GOP's number two in the House is here, Congressman Eric Cantor. He's making some points that are even catching the president's ear.

And when you're out of work, the money is tight, is it worth paying for health care? We went to North Carolina this week, where the bleak job market is forcing people to make the toughest choices. That's all ahead in this hour of "State of the Union."

A live picture of the White House there on a beautiful Sunday morning in Washington, D.C.

And before we get to our guests, a quick glance at what we'll do this Sunday and every Sunday morning on this program.

Here in our 9:00 a.m. Eastern hour, we'll have interviews with top newsmakers in the United States and around the world. At 10:00 a.m., Howie Kurtz and his "Reliable Sources" take a critical look at the media. At 11:00 a.m. Eastern, CNN's top reporters and analysts will discuss and debate the day's major stories, including highlights of the Sunday morning talk shows. And at noon eastern, more newsmakers, and for one, the "Last Word." And through it all, we keep our promise to add your voices to our Sunday conversation. So let's get started.

Put simply, America is bleeding jobs. By the end of the workweek, we learned another 651,000 people had been laid off in February alone. The country's unemployment rate now sits at a 25-year high. Troubling numbers, but the president is trying to reassure Americans. This past week, he touted his stimulus plan as a job creator, unveiled help for homeowners, and opened the debate on a very big issue, health care.

So do the president's numbers add up and can a country marred in recession afford all of this? White House Budget Director Peter Orszag is here with some answers. Welcome, Peter, to "State of the Union." And let's begin with those numbers -- 651,000 people out of work just this last month, 8.1 percent unemployment. I want to ask you the question Americans are asking, including this one right here on the front page of "The Times Daily," in northwest Alabama, when do we bottom out?

ORSZAG: Look, it's very clear the economy is facing some tough times. We are inheriting the most severe economic crisis since the Great Depression. Job loss began in January 2008. It's going to take some time for us to work our way out of this.

But we acted quickly. Within the first month of -- after the president took office, enacted a recovery act to start back on the path to economic growth.

KING: Let me jump in on that point. Enacted a recovery act. You've learned since then that the economy is even worse than maybe you thought just a few weeks ago. Will there have to be another stimulus plan?

ORSZAG: Well, look, we just got the recovery act into law. The money is starting to flow. Let's give it some time to work.

KING: Let's give it some time to work. As you give it time to work, the president, if he is not busy enough dealing with the economy, health care and all these other agenda, he has become a bit of a financial adviser to the American people. At the White House this past week, he said I would be out buying stocks. There's some values out there. And then he added on to that in an interview Friday with the "New York Times." Let's listen to the president.

(BEGIN VIDEO CLIP)

PRESIDENT BARACK OBAMA: What I don't think people should do is to suddenly stuff money in their mattresses and pull back, you know, completely from spending. I don't think that people should be fearful about our future.

(END VIDEO CLIP)

KING: People are fearful about our future. The president trying to be a psychologist there as well as the president of the United States. What is the point of the president himself, the commander in chief of the United States, encouraging people to get involved in the stock market right now?

ORSZAG: Well, look. People have been critical that we've either been too optimistic or too pessimistic. What the president is trying to do is tell the truth. We are experiencing some severe economic difficulties. But also, put in place the package -- the policies that will get us out of trouble. So not only the Recovery Act, but, frankly, turning in a new direction, investing in health care and education and energy, not continuing the same policies. Things have not worked. We need a change in course.

KING: A political risk there, though, for the president, to be telling people don't stuff money in your mattress, go out and buy stocks. Americans go out and buy those stocks, and if the market continues to be down or at least stagnant, they're going to blame the president.

ORSZAG: Well, look, I think what I'm focused on is we need to get this economy back on its feet. We need to be dealing with the budget deficits that we are also inheriting. We have got a lot of work that we need to do.

KING: But that work is outlined in this. This is the outline of your budget. You'll have the big budget a couple of months down the road when you get to all the programs there. But here is the outline of the budget. And if you take -- this is page 132 that I've copied and pulled out. You say in your budget, you project, in making all these spending projections and planning all these programs that the economy will grow at 3.2 percent next year. Based on what you've learned since you put this book together and what we saw in the economy last week, there are many people who think that is an overly optimistic projection, 3.2 percent. Do you stand by it?

ORSZAG: Well, look, our projections are in line with the Congressional Budget Office's and other outside experts. I think we, again, we need to give this Recovery Act some time to work. I don't think we should be chasing our tail, constantly revising assumptions. Let's see what happens, let it work. We'll have a mid-session review later in the year. We'll have an opportunity to revise the assumptions at that point.

KING: I'll ask you about those potential revisions in a second, but another thing you say here is that you project an 8.1 percent unemployment rate for calendar year 2009, or budget year 2009. It is at 8.1 percent right now as we sit here in early March. And most economists would tell you they expect it to get worse. Do you think that is a reasonable projection, or will you have to go back? Because if the unemployment rate goes up, what that means to your budget is more money for unemployment benefits, more money for food stamps, more money for other federal programs that go to help those people who are hurting. When you look at that number, do you think maybe we're a little off?

ORSZAG: Well, again, I just want to underscore. We're inheriting a very severe economic contraction. These projections are in line with the Congressional Budget and other outsiders. And of course, as the process moves along -- it's not constructive to constantly be chasing your tail every time new data comes in and revising all of the numbers. There's a process here. When the mid- session review comes out, we will have an opportunity to revise the assumptions.

KING: There is a process and I know you don't want to chase your tail, but those decisions and those changing calculations could have enormous consequences for the president's agenda and for the American people, who are waiting for this help or waiting for things he promised in the campaign.

Let's talk about one, which is health care. During the campaign, candidate Obama said that he would spend $50 billion to $65 billion on health care and he would get that money from eliminating the Bush tax cuts on wealthy Americans, those making over $250,000. You now have said you want that money when those tax cuts expire two years from now, you want that money for deficit reduction, and the money for health care as now projected in this budget would come from another tax increase or revenue gain, which should be changing the charitable contribution deduction for wealthy Americans. You say they should not get as much, to pay for health care.

What happens if these numbers are wrong? Where do you get the money for health care? Do you have to raise taxes again or do you put health care off for a year? ORSZAG: First, let's clarify. The health reserve, that significant downpayment that we put on the table, is partially from revenue, but we also have very substantial efficiency improvements in Medicare and Medicaid itself. So, for example, $177 billion in subsidies that are currently going to private insurance firms to cover Medicare beneficiaries, we're paying them $1,000 more for beneficiary than covering the same people under traditional Medicare. We propose a competitive bidding process. Let the firms bid for that business. We save $177 billion, and that would be dedicated to health reform. So this is a balanced approach of additional revenue and some efficiencies in the health system.

KING: But the president promised to be as open and transparent as any administration in history, more open and transparent. What would have to give if the -- and Congress says they might not give you that charitable contribution change. They say they like that. They believe that encourages people to give to charities. If you don't get that and you need more money to pay for health care and the economy is not as strong as you thought just a few weeks ago, what has to give? Do you have to go out and find more money, meaning more revenue, tax increases, or does health care have to wait a year?

ORSZAG: Well, we have to get health care reform done this year. But let's look at the facts. On that tax provision, for example, all we are proposing is to return the tax break for charitable contributions to the level that existed at the end of the Reagan administration. Only 1.2 percent of taxpayers would even be affected, very small effect, and it would provide revenue to fund a health effort.

What we have said is health reform has to happen this year and it has to be deficit-neutral. So we will work with the Congress to make sure that those two things happen.

KING: Deficit-neutral means possibly more revenue if you need it?

ORSZAG: If -- if -- we have said this is a significant downpayment, but more may well be necessary, and we will work with Congress to put in either additional savings from Medicare and Medicaid, or additional revenue.

KING: I want to ask you a question -- I want to talk about the current spending bill in the Congress after we take a break. But before we go to that break, Americans sitting around their kitchen table this morning and every day -- and I've been traveling a lot in the past couple of months -- they are deciding they have to cancel a vacation, they can't take the kids out to dinner. Maybe they have to downsize their house and take even more drastic steps. Where in here could you say -- what are two tough choices, things when you were putting together this budget, you sat with the president and said, I love this program, I know you love this program, but in this bad economy, we need to make tough choices and that has to go?

ORSZAG: Let me give you two examples. The president put forward a making work pay tax credit. In the campaign, it was $1,000 per family. The way things have turned out, we don't think we can quite afford that. It's now $800 per family in this budget.

Another example. The president strongly supports helping low- income workers get back into the workforce. The earned income tax credit works really well to help workers do that, but there is part of the EITC -- it's called advanced EITC -- which does not work well. Claimed by fewer than 1 percent of taxpayers, EITC claimants. Doesn't work. We are proposing eliminating it, even though we obviously support the motivation behind it.

KING: Much more of our conversation with Peter Orszag when we come back in a moment. And among the topics, a rodeo museum in South Dakota, pig odor research in Iowa -- the kind of pet projects candidate Obama promised to get rid of. So why is the president set to sign a bill packed with thousands of earmarks? We'll let Peter Orszag explain, next.

(COMMERCIAL BREAK)

KING: Welcome back to "State of the Union." We continue our conversation now with the White House Budget Director Peter Orszag. I want to get to the specifics in a second, but there is a huge spending bill -- got held up in the Senate a little bit -- but expected to make it to the White House by Tuesday or Wednesday of next week. The president has said he would sign it. It is full -- maybe 8,000, 9,000 of these so-called earmarks, many of them, people would say, pork- barrel spending. I'll get to the specifics in a second. But the central premise of the Obama campaign, yes or no, was to change the way Washington does business?

ORSZAG: Look, the earmarks have come down significantly, 75 percent..

KING: That's not an answer to the question. The central premise of the Obama campaign...

ORSZAG: I understand. Let me just say, look, we are like -- this is like your relief pitcher coming in into the ninth inning and wanting to redo the whole game. Next year, we will be the starting pitcher and the game is going to be completely different. If you look at what we have done, for example, in the Recovery Act, no earmarks. When we are in office and we're working with the Congress to write those appropriations bills, we are going to be much more transparent, we're going to be moving towards the vision the president put forward. But right now, again, we're a relief pitcher in the ninth inning. Let's get this done, move on to the business of attacking the problems that the economy faces and investing in education and health care and energy. KING: Well, you say move on. But the American people don't like some of this. I want to show some of what's in this bill. There's $1.7 million for pig odor research in Iowa, $819,000 for cat fish genetics research in Alabama, almost $200,000 for the Buffalo Bill historical center in Cody, Wyoming, $238,000 for deep-sea voyaging program for Hawaiian youth, $209,000 for blueberry production in Georgia. Let's assume for the sake of this conversation they are all worthy projects. At this moment in time, when 651,000 Americans lost their jobs last month, unemployment is as high as it's been since 1983, should federal dollars be going to those projects at this moment in time?

ORSZAG: Look, would we have written this thing differently? Absolutely. But we face a basic choice here, which is this was negotiated last fall. It's been baked in. It includes some important initiatives. For example, money to fight health care fraud, funding for education Pell grants, funding for health care. So we face a basic question, is it uglier than we'd like? Yes. But again, this was negotiated last year. We think we should just move on.

When we are engaged in the fiscal year 2010 in the appropriations process, it's going to look a lot different.

KING: We'll hold you to that promise. But I want you to listen to candidate Obama. This was one of the central premises of his candidacy, the reason he said he was unique among the presidential candidates was that he had not been here long enough to be poisoned by Washington. Let's listen.

(BEGIN VIDEO CLIP)

OBAMA: We're not going to change anything if we don't change how business is done in Washington. That's one of the reasons that I decided to get in this race in the first place.

(END VIDEO CLIP)

KING: He didn't say, I'll start in six months. He became president on January 20th. I understand the political argument. You have so many balls in play. You want to save some chips down the road. But he could get some of this out of here if he just went to the Rose Garden and looked the American people in the eye and said, I'm sorry, you have to take some of these things out. Americans are facing incredibly tough choices. This cannot happen.

ORSZAG: And it will not happen when the president has the full legislative and appropriations process in place.

Look at what happened under the Recovery Act, where the president led and there were zero earmarks. That is what -- we are going to fulfill the president's vision here, making earmarks much more transparent, but, again, I want to come back. It's like we are stepping in in the ninth inning. You can't just redo the whole game.

(CROSSTALK)

KING: Sometimes a pitcher comes in in the ninth inning and changes the game, changes the game!

ORSZAG: But you can't, you know, change the rules of the game and go back to the earlier innings and rewrite...

KING: You can change the dynamics of the game, though, Peter, you can.

ORSZAG: I'm going to come back and just say, again, if you look at where the Congress is, this was negotiated between the House and the Senate. Would we like to get the earmarks down further? Yes. Would we like to make them more transparent? Yes. Will that happen in the future? Yes. We have been in office less than eight weeks. This was negotiated before we came into office. Our view is rather than -- you know, Washington is rife with -- we need a little less talk and a lot more action. We need to get this out of the way and move on to serious business that will include next year, when we are in charge -- when we are -- when you can hold us responsible, a much different ball game.

KING: I'm not sure people who voted for Barack Obama or against would say we can't hold you responsible for the first lead-up (inaudible).

Let me try the analogy this way. If I ran for mayor on an anti- crime platform and there was a gang that was out there robbing banks, do you think I could look the people of my city in the eye and say, well, the gang robbing the banks started that last year. I'll get any new gangs that come in this year. You say it's the ninth inning, but you're responsible for what goes on in this country. He could stop some of this.

ORSZAG: That's -- I'm not -- I don't think that that's correct. I think at this point, given where we are in the process, we either need to sign this legislation, even though there is lots of stuff in there that we may not support, or we have to forgo, you know, those key investments in combating health care fraud and education and energy.

This, again, I mean, I'm sorry I keep repeating myself, but this was negotiated before we came into office and we don't think it's possible to step in and dramatically change it.

KING: We'll continue this conversation another time. We're about to have the number two House Republican who will come in and join our conversation, and they have looked at this, the Republican Party, and they don't like it. They say it raises taxes. They say it won't create jobs. It won't accomplish many of the goals you say it will. Let me in closing give you an opportunity to speak to our next guest, the number two House Republican Eric Cantor. Respond to the Republican criticism of this budget or just...

ORSZAG: Well, I guess I would say, look, we've been down a path that has not been working. We're proposing a change in course. And with regard to the criticisms, it's almost like, as Ronald Reagan said, there they go again. Let's take a look at their alternative. This week, the senior Republican on the House Budget Committee published an op-ed in the "Wall Street Journal" suggesting their plan. First, lots of details are missing, but what details we have are troubling. Massive tax cuts, $3 trillion in tax cuts for the wealthy and corporations. Medicare system, which when you turn 65 you're given a check for 80 percent or less of the cost of health care and then you're on your own. And then with regard to Social Security, privatization, putting your Social Security money in the stock market. I'm not making this stuff up. I would urge you to invite the Republicans on this show and ask for their specifics, and then compare them head-to-head. Because we are proposing a change in course in which we are not only fiscally responsible, but we are investing in education, we are investing in energy, and we're investing in health care.

KING: We will ask those questions. Peter Orszag, the budget director, thank you for joining us this morning.

KING: And as Peter was just noting, not everyone thinks the Obama team is on the right tack track to boost the economy. A leading member of the Republican Party says there are giant flaws in the president's plan -- up next.

And later, paying for health care or putting food on the table? We'll take you to North Carolina, where a bleak job market is leading to some very tough choices.

(COMMERCIAL BREAK)

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

A deadly suicide mission in Baghdad. Officials say a man wearing a vest packed with explosives drove a motorcycle rigged with bombs into a crowd of police recruits. Thirty people were killed, more than 60 injured.

Israel has launched more air strikes into Gaza. The Israeli military says two smuggling tunnels and a weapons storage site were hit yesterday. The Israeli military calls the air strikes a response to Hamas rocket attacks. No reports of casualties.

Former First Lady Barbara Bush could remain in the hospital another week as she recovers from heart surgery to replace an aortic valve. The 83-year-old wife of former President George H.W. Bush is out of intensive care and in a private room now.

Live pictures of the Capitol building here in Washington on a beautiful, beautiful Sunday morning.

Time Magazine described Congressman Eric Cantor of Virginia as the person "bringing the mojo back to the GOP."

Lately, he's been getting more attention from the media, his party, even the president.

(BEGIN VIDEO CLIP)

OBAMA: I'm going to keep on talking to Eric Cantor.

(LAUGHTER)

Someday, sooner or later, he's going to say, "Boy, Obama had a good idea." (LAUGHTER)

It's going to happen. You watch.

(END VIDEO CLIP)

KING: The man President Obama working hard to convince, the number two Republican in the House, is here with us now, Congressman Eric Cantor.

Welcome to "State of the Union."

CANTOR: Good morning, John.

KING: Let me begin by giving you an opportunity to respond to the president's and his budget director, who was just in that seat, who says, maybe you don't like their budget that they put forward, but Peter Orszag says the Republican alternative is privatizing Social Security, he says; destroying Medicare. You would say?

CANTOR: Look, I mean, I think that what we've got to focus on is the fact that this country is in a heap of trouble right now. And we've all got to work together, and we do have to change the way this town does business. That's how we're going to start to bring the economy back.

And just as we did on the stimulus package, House Republicans presented a plan. I personally handed that plan to President Obama. President Obama said, "Eric, there's nothing crazy in here."

So we can work together. The problem has been up, until now, there is a real disconnect with what' going on in this town and what people across this country are feeling.

You know, when they have to go in and make their decisions on their family budgets and decide not to take a vacation, decide not to put an addition on to their house, they look at Washington and hear Director Orszag and others say, look, we've inherited these trillions of dollars of deficits.

Well, if you've got a situation like that, how in the world should you be going and make it worse?

Families are not doing that. We've got to go in and tighten the belt and make sure that we deliver on the kind of things that people are expecting right now.

KING: One of the things a lot of House Republicans were talking about, as the week came to a close, is the spending freeze. How would a spending freeze create a job or provide health care to somebody who's been tossed from their job?

CANTOR: Well, what we need to do is we need to focus on the job at hand, which is getting this economy back on track. And when you sit here and look at the budget that the president and his administration have presented and the Democrats are working on in Congress, it does not go at the problem.

The problem is people -- small-business people, right now, are not taking home paychecks. They're having trouble keeping the lights on and sustaining the jobs.

So why is it that we want to expand federal spending right now?

Instead, we should be looking to the private sector. We should be looking at creating jobs, creating wealth, getting the small- business people back into the game so we can see job creation at home.

KING: You're critical of the president's policies. I want to ask you about the president's team.

One of your members, a Republican member of Congress, greeted Secretary Tim Geithner at a budget hearing this past week by saying, "It's good to see you, but I'm afraid to see you, because every time you speak, bad things happen in the stock market."

You're quoted in Newsweek as saying, "There's a question of confidence about the Obama team." And that's one of the reasons, you think, the markets have been in a downward spiral, that the Dow is in trouble because the markets don't have confidence in the Obama team.

Is that what you're saying?

CANTOR: Well, I don't think the American people have got a lot of confidence in what's going on. You look and see what happened when, you know, the stimulus -- so-called stimulus vote came forward and all Americans saw was pork-barrel spending, a train from Disney World to Las Vegas so, I guess, we could take more families into the blackjack tables.

Then the next was an $1,100 (sic) bill that Nancy Pelosi brought to the floor and the House members didn't even get to read it, nor did the public have the right to know.

Now you've got President Obama's housing plan, where basically 92 percent of Americans that are paying their mortgage are being called on to subsidize those who aren't, essentially saying to the people playing by the rules, they've got to help those that aren't.

No wonder people are outraged; no wonder you see $1.6 trillion of evaporation of wealth in the stock market since this administration started. We've got to get focused here. We have got to start doing the things that bring jobs back to this economy, which is exactly what House Republicans have been doing.

KING: As that debate goes on, in The Washington Post, on the op- ed page this morning, John McCain, leading Republican, the president's opponent in the last election, and Byron Dorgan, a leading Democrat -- a more conservative Democrat in the Senate, say, let's have an investigation.

They believe there should be a select committee in the Congress to look what happened in the last year, the collapse of these financial institutions and what -- any role the regulations might have had in that, what the institutions might have done wrong; let's take a big-picture, investigative look at the economy; policy in Washington; what happened on Wall Street.

Is that a good idea? Do we need a select committee?

CANTOR: Well, listen, we just need some policies that are focused on trying to get the economy going again.

Again, it is about job creation. If we know that 70 percent of the jobs in this country come from small businesses and entrepreneurs, why are we not providing tax relief to them?

There's not question. There's a lot of blame to go around, as far as where we are. We've got an outdated regulatory system. We've got regulators that have not done their job. We've got plenty of blame to go around on Capitol Hill.

KING: It sounds like you're skeptical, though, of having a big congressional investigation.

CANTOR: Again, this is not about a dog and pony show. This is real. I mean, I think that one of the statements made earlier this week is a stock market is a tracking poll.

Are you kidding me? $1.6 trillion of value has gone away from people's life savings. People are hurting. No wonder they're so upset. We've got to go and start producing and making a federal government that works again.

KING: I want to veer off the economy for just a moment because the president's going to make a significant step tomorrow. He's going to sign an executive order lifting the restrictions on embryonic stem cell research put in place by President Bush.

He had signaled, during the transition, that he wanted Congress to do that legislatively, but they have now decided to issue an executive order. Bad idea or good idea?

CANTOR: Well, John, look, I mean, certainly there is a lot of discussion around this. But, first of all, there's a reason why this discussion is coming up this week.

CANTOR: Why are we going and distracting ourselves from the economy? This is job number one; let's focus on what needs to be done.

But as far as the issue of stem cell research, I don't know anybody who is not supportive of that. What we're talking about here, though, is embryonic stem cell research and the question of federal funding of that.

And -- and, frankly, federal funding of embryonic stem cell research can bring on embryo harvesting, perhaps even human cloning that occurs. We don't want that. That shouldn't be done. That's wrong. Let's put the federal dollars at the -- with the stem cell research that has produced results, which is the adult stem cell research, and let's get on with business here. People are...

KING: But you don't have the votes in Congress to block it, though, do you?

CANTOR: Well, listen, John, we -- we haven't seen. We've got a new Congress now. And certainly that is something that we ought to be talking about, but let's take care of business first. People are out of jobs. And, again, there is a reason why all this is happening right there -- right now.

KING: I was -- I was just beating up the budget director a little bit about why President Obama won't use his enormous popularity to stop some of the pork-barrel spending in this big spending bill that Congress is about to send to the president.

And you don't have any earmarks. And your leader, John Boehner, doesn't have any earmarks. But if you look on the Republican side on the Senate -- I want our viewers to look at this -- the leader, Mitch McConnell, has nearly -- has $51 million in earmarks. Senator Shelby, the ranking Republican on the Banking Committee, $114 million in earmarks.

Go through the Republican leadership in the Senate where the leading Republican members of key committees in the Senate, and you can see it on the screen right there, millions and millions of dollars in these earmarks.

Do they undermine your Republican argument that this is wasteful pork-barrel spending? And should you start by telling your own Republican colleagues across the hall in Congress you need to take those out? CANTOR: John, let's -- let's call it how it is. First of all, if -- if you make a promise, people expect that you live up to it. And that's why this administration's refusal to go in and change this bill, I think, is a -- is a false position.

There is no way anyone could take what Mr. Orszag has said with any credibility. Of course they're negotiating on this bill in the Senate right now. To say that we would have drawn -- drawn it differently but leave $430 billion-plus dollars on the table like this? No way. People are expecting this administration to live up to the promises made. And as far as...

KING: But your moral argument is undermined by the fact that there are -- 40 percent of these earmarks are Republican earmarks?

CANTOR: Listen, John, the leader, John Boehner, and I have taken a public position advocating that all of our members adopt a moratorium on earmark spending until we can get a process in place that, frankly, demonstrates that these earmarks are awarded on merit, not on political muscle.

It shouldn't be that because there is a congressional district that has more political muscle that they get more largesse. We don't have the luxury to be acting like that in Washington right now. There's no question we've got to change this entire process. It is a system gone bad.

KING: You are one of the new national faces of the Republican Party after two election cycles in which Republicans had not so good results, as I think is a tender way to say it. There's been a debate in the past week between the new Republican National Committee chairman, Michael Steele, and Rush Limbaugh. A, is it helpful? And, B, Michael Steele is quoted in the New York Times this morning in an interview saying, "I'm trying to move an elephant that's become mired in its own muck." Is that the state of the Republican Party right now? And where do you come in on this whole Steele-Rush back-and- forth?

CANTOR: Listen, the future of the Republican Party is tied to the future of this country. People right now are desperate for leadership, are desperate for us and this party, as well as the other, to begin talking about ideas that deal with the relevant challenges that they're facing every single day.

And it is not about individuals. It's not about Rush; it's not about Rahm Emanuel; it's not about any particular individual.

This is about ideas right now. Which ideas can we put into place right away to make sure that we address the challenges of this economic downturn? If we do not begin to start acting more like adults in this town and produce so that people can get back to work, you know, all of us are very concerned with where this country will end up.

KING: Congressman Eric Cantor, the number-two House Republican, we thank you for joining us here. And come back any time. We'll continue the conversation.

CANTOR: Thank you.

KING: He's a conservative with a big voice, and he says he wants President Obama's policies to fail. But after this past week, should Democrats be cursing or thanking Rush Limbaugh? We'll ask Paul Begala and Ed Rollins when "State of the Union" returns.

(COMMERCIAL BREAK)

KING: It was a busy week to begin with. More bad economic news, a big debate over the budget and pork-barrel spending, and the early steps of a new health care reform debate, and then word the president will make major changes in how the federal government restricts embryonic stem cell research. It's a lot to keep track of, but we've got some experienced help.

Democratic strategist Paul Begala joins us from Denver, and veteran Republican strategist Ed Rollins from New York. Paul, I want to start with this big spending bill conversation we were just having with Eric Cantor and Peter Orszag. The budget director makes the case, well, it's the ninth inning, and this was all negotiated, and so we're going to sign this, even though we don't like a lot of the pork-barrel spending. Is that leadership? Or was -- wasn't the central premise of the Barack Obama candidacy from day one "I will change the way Washington does business"?

BEGALA: I think so, but it was not simply this notion of earmarks. I have to say, I think we in the media and I think both sides in politics have overstated the so-called crisis of earmarks. It's 1 percent -- 1 -- 1 percent of federal spending. You can take every single earmark and drown it in the bottom of the Potomac and you will have not made the slightest dent in either our economic problems or our deficit or our budget problems, so it's largely symbolic, I have to say.

KING: But what about the signal it sends to be spending money for pork odor in Iowa...

BEGALA: Right.

KING: ... or a Bill -- Wild Bill museum in Wyoming at a time when Americans can't take a vacation, can't go to dinner, and, you know, can't buy a new car?

BEGALA: Well, this is the case I think the Obama administration and those who support this -- obviously, the Buffalo Bill museum was put in there by a Republican. There are no Democratic congressmen from Wyoming or senators.

But I think they need to make the case for this. I was struck -- Eric Cantor in his interview with you said, you know, the government has to restrict the spending, we have to cut back on spending. No, no, sir. That's a political argument, not an economic argument. Every serious economist says the economy is down. Business investment is down 28.8 percent. Somebody's got to prime the pump. It has to be the government. The government has to start spending that money. That will prime the pump for business. When they put in a new road or a new bridge, they hire small businesses and some big businesses to do that. So I think actually what we need is more spending, not less. It just has to be smart.

KING: Ed, you came to Washington with a new president, Ronald Reagan, back in the day. And what are the tough decisions you have to make? When you've got 10 or 12 things you want to do and something like this comes along that you don't like and you have to make a calculation, "Am I going to jump in front of the train or am I just going to stand by the tracks?"

ROLLINS: It's very important not to be fighting on multiple fronts at the same time, and I think the economy is the sole battle this president's going to be judged on. I think the other things are very ambitious, maybe beneficial. He may get them over the course of time. But if he gets too much on his plate and too much before the Congress, the Congress will basically run with anything they want to run with. He's got to create some fiscal controls.

And even though I agree with Paul -- it's very symbolic, earmarks and what have you -- if he would have vetoed this bill or threatened to veto this bill, it would have sent a very loud message that next year, when it's my budget 100 percent, don't put this crap in there.

KING: You both have talked about the busy agenda. One of the things that Barack Obama will do tomorrow, we are told, President Obama will sign an executive order changing federal regulations, restrictions on embryonic stem cell research. It's interesting. It's a policy many urged in some time, and it's a policy he promised to support during the campaign.

But during the transition, he indicated in an interview with me that he would prefer that Congress pass legislation, not do this through executive order. Let's listen to then President-elect Obama.

(BEGIN VIDEO CLIP)

OBAMA: I usually prefer a legislative process, because those are the people's representatives. We're still examining what things we'll do through executive order, but I -- I like the idea of the American people's representatives expressing their views on an issue like this.

(END VIDEO CLIP)

KING: So, Ed Rollins, tactically, why do you think the change, because there are so many balls in play in Congress right now?

ROLLINS: Yes, I think -- I think it would have been a big fight in the Congress, and he may have -- he may have won in the end, but it would have been a long drawn-out. It's an emotional issue. Both sides feel very strongly. It was a commitment he had made in the course of the campaign. He's entitled to change it by executive order. I think it's going to be out of the way by tomorrow, and I think -- I think he -- get back, focus on things that, you know, he sees as very important. KING: To get a fight on this one, Paul?

BEGALA: Yes, I think actually they'll come back to the Congress, though. I think Ed's right, and I think the president is heeding the advice that Ed gave, which is only so many battles at a time, particularly in the Senate.

You know, he's going to a lot of moderate conservative Democrats and asking them to take tough votes. Here's one that he can at least put off. But here in -- in Colorado, I saw Diana DeGette, who is a congresswoman from here in Colorado. For 10 years, she has been pushing for this legislation, and she told me she's going to keep pushing, that the -- the executive orders can be very important.

It will liberate scientists to be able to do the kind of research that could very well make breathtaking advances in medical science, but she wants to see that written into law, as well. So some time over the next four or maybe eight years, they're still going to have to vote on this on Capitol Hill.

KING: You have both mentioned the preeminence of the economy, so where I'm going to move the discussion right now will seem a bit of a sideshow, but there has been a big sideshow in Washington in this debate over who is the leader of the Republican Party and a spat between Michael Steele, the now-elected chairman of the Republican National Committee, and Rush Limbaugh, the conservative talk show host.

And, Paul, I want to let you go first on this one. And I want to show you first the cover of Newsweek, because there -- the headline is "Enough: A Conservative Case against Limbaugh." And you see that, an article by David Frum, there. So now from the right, Paul, there's somebody else critical of Rush. You don't have the stage to yourself.

BEGALA: Well, and God bless Mr. Frum. It's easy for me, frankly, right? I've never liked him personally. I have to say, most conservatives I like. I love Ed Rollins. But I don't even like Rush personally; I don't pretend to.

But I think he is very bad for the Republican Party. And now I think a lot of thoughtful conservatives are saying the same thing, because most Republicans -- the dirty little secret is -- are thoughtful, decent people who want the president to succeed, but disagree with this or that idea.

Limbaugh puts the wrong face on their party. It's a bloated face. It's an unattractive face. But worse than that, what comes out of that unattractive, bloated face is very -- it's very negative. It's always "no, no, no."

So here's a suggestion. Again, out here in Colorado, I'm seeing all my -- my friends and the leading politicians here. Senator Mark Udall, the new senator, already senior senator from Colorado, suggests that maybe Rush, if he wants to debate President Obama, he should run for office, and I think it's a great idea. There's a Senate race is coming up. Mel Martinez in Florida is retiring. Rush has a home in Florida. That's where he pled guilty to violating the drug laws. He could run for Senate from Florida. I'll pay the filing fee, Rush. Or if he wants to debate the president, run for president, Rush. Get in the arena if you really want to be the leader. So run, Rush, run. That's going to be my new mantra.

KING: Ed, you get to close this one up, and a lot to respond to there. Pick -- pick whatever it is you want, but to the -- to the point, is this helpful? It is a sideshow in some ways, but the Republican Party is looking for a leader and a voice. Is this helpful?

ROLLINS: Well, I think that's -- I think that's a given. We are desperately looking for a leader, and the reality is that the leaders are people who are elected. Someone like Eric Cantor should be the spokesperson for our party, the leaders in the Senate, governors across the country. At the end of the day, the Republican Party is not a church that you go to on Sunday and pray in. It's -- it's where you go vote. And at the end of the day, you vote for people who can change things.

And what Rush wants to say is important to some people. The more important party here is that Michael Steele has got himself mired as the new chairman in an idiotic debate. And he talks about the -- the -- the Republican elephant in the muck. Unfortunately, he's on -- he's on the bottom of it, and he needs to get that elephant back up and moving forward.

He's a capable guy. I think he's had a bad start. And hopefully the next several weeks he'll focus on organization, he won't think out loud on talk shows, he'll basically get on message, which is very, very important.

KING: As always, gentlemen, you're both very shy and timid. We thank you for being with us this morning. Ed Rollins in New York...

ROLLINS: Thank you.

KING: ... Paul Begala from Denver this morning, thank you, gentlemen.

Let's take a quick look at what's ahead on "State of the Union." Up next, we take you to North Carolina for a look at the fallout from a bad economy on health care choices.

In our 10 o'clock hour, Howie Kurtz asks "TMZ's" Harvey Levin why he published a controversial photo of the singer, Rihanna.

At 11 a.m., two financial experts help you manage your money, as unemployment hits new highs and the stock market hits news lows.

And at noon Eastern, the newly re-elected mayor of Los Angeles, Antonio Villaraigosa, joins us for the last word. Our "State of the Union" report will be right back. (COMMERCIAL BREAK)

KING: The economy and health care reform are two giant challenges facing the new administration. And as the jobs picture worsens, so, too, does the outlook for many Americans struggling to get the right care or to pay their medical bills.

So with unemployment now at its highest levels in a quarter- century, we headed to North Carolina for a closer look. We were down in the Winston-Salem area, but let's look first at the statewide numbers.

KING: Statewide, the unemployment rate is now 8.1 percent. A year ago, it was just 5 percent, 92,000 jobs lost in North Carolina in the last year, 39,000, almost 40,000 of them manufacturing jobs. There are at least 45 million Americans across the country without health insurance, and at least 2.5 million of those uninsured live in North Carolina.

So while in Winston-Salem, we wanted to look beyond the numbers, at the personal stories of people making tough choices in a very bleak job market.

(BEGIN VIDEOTAPE)

KING (voice-over): Twenty-six years practicing dentistry and tracking the ups and downs of the economy through the choices of those in the chair.

WHAM: You didn't know you could have so much fun in one day, did you?

KING: One big trend of late is procrastinators who have put off work for months or longer suddenly rushing to make appointments, a tell-tale sign to Dr. Bruce Wham they're being laid off in a few weeks.

WHAM: They had to have a crown done or there's something they've been putting off, replace some restorations. A lot of them are very eager to get those out of the way while they still have the insurance benefits. And that -- that seems to be a real driving force for a lot of them.

KING: It is a different calculation for those out of work for weeks and months who can't find new jobs because things are so bad.

WHAM: They're asking us to -- you know, is there any way we can hold off? Is there something we can do that's less involved, less -- less costly, until I get my job, until I know my insurance is going to be back in effect? And so we're doing a lot of that, and to try to tide people over for the short term.

KING: Defining "short term" is a difficult task in a worsening economy where the health care fallout is everywhere.

PEGRAM: They just present you with a package and say, "Today is your last day." KING: Doug Pegram was given eight weeks' severance when clothing maker Hanesbrands eliminated his job in November. His unemployment benefits run about $1,200 a month. And after calculating his options, Pegram decided to pass on the COBRA health care policy available to laid-off workers.

(on-screen): Just to have some money in your pocket?

PEGRAM: Yes. And not be able to pay for, you know, a place to live and food and all that.

KING (voice-over): For most 28-year-olds, a relatively low-risk gamble, most.

PEGRAM: Pain. I deal with pain every day. It's my joints. My joints hyperextend, and they -- they move too much. So all day, every day, a lot of days I'm in pain in my joints, in my legs and my hips.

KING: Pegram has a rare disorder called Ehlers-Danlos syndrome, in most cases, a source of pain and discomfort, but in some life- threatening. PEGRAM: In one type, you can have heart failure if you don't get checked out. So it's -- it's pretty serious that you actually go to the doctor.

KING: While at Hanes, he paid $135 a month for company health insurance and $30 or $40 more in co-payments for doctors appointments. But now, with no insurance, the doctor charges $150 a visit cash upfront. The insurance company paid a negotiated rate of $86.

And this stings more: When he had insurance, the company got a discount and paid $68 for his most costly prescription. That same pharmacy told Pegram it would cost $160, and he now goes to a discount outlet where it is $127.

(on-screen): So if you're an individual, you pay a lot more money?

PEGRAM: Yes, exactly.

KING (voice-over): Passing on insurance is a gamble Pegram points down to painful, yet simple math. A COBRA policy would have cost $550 a month. For now, his out-of-pocket health care costs run roughly $300.

PEGRAM: You have to do what you have to do sometimes and, you know, just hope for the best. And if anything happens, then that's another story, but I'm hoping to find something before that does. I just feel like everybody has a cross to bear in some way, shape or form, and that's just mine.

(END VIDEOTAPE)

KING: We asked Doug Pegram, what can Washington do to help? His first answer: create more jobs. As you know, one of our goals is to get out of Washington as often as we can. We've traveled everywhere, from Pennsylvania to Michigan, Arizona, North Carolina, and states in between. Where should we go next? You can e-mail us, stateoftheunion@CNN.com. Tell us why we should come to your community.

We want to say goodbye now to our international audience for this hour. But up next for our viewers here in the United States, we'll go through some of the morning headlines with Howie Kurtz. Stay with us.

(COMMERCIAL BREAK)

KING: I'm John King. This is our "State of the Union" report for this Sunday, March 8th, a new week, but sadly the story's the same: a bad economy that's getting worse. How can you keep from getting rolled by the recession? We'll get answers from financial experts and authors Jennifer Openshaw and David Bach.

The government spending plans for this year and next are getting pushback from both Democrats and Republicans, a big topic of talk on the Sunday morning shows. We'll break down the spin with the best political team on television. Singer Chris Brown's assault case is playing out big on TV and in the tabloids. Howard Kurtz and his "Reliable Sources" talk with "TMZ's" Harvey Levin about his (OFF-MIKE) to publish a disturbing photograph of a badly beaten Rihanna. That's all ahead on "State of the Union."

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