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STATE OF THE UNION WITH JOHN KING

State of the Union: Interview With Peter Orszag; Interview With Congressman Eric Cantor

Aired March 8, 2009 - 20:00   ET

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


JOHN KING, CNN ANCHOR: I'm John King. And this is our STATE OF THE UNION report this Sunday, March 8th.

President Obama wants to move forward with an ambition health care and energy agenda despite a worsening economy. We'll discuss how his plan could affect your taxes with the man in charge with the nation's budget, Peter Orszag.

Republicans are hitting the president's spending plan from all sides. What can the White House do to win their support? We'll find out from the number two Republican in congress, Eric Cantor.

And like many other cities, Los Angeles is shedding jobs, money and waiting for the federal government's health. L.A. mayor Antonio Villaraigosa gets our "Last Word."

That's all ahead in this hour of STATE OF THE UNION.

March 8th, Sunday morning, a beautiful Sunday here in Washington, D.C. And as you look at the White House, you could put it quite simply, America is bleeding jobs. By the end of the workweek, we learned another 651,000 people have 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, 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, very big issue, health care reform.

So do the president's numbers add up? And can a country mired in recession afford all this? The White House budget director, Peter Orszag, with the answers.

Welcome, Peter, to STATE OF THE UNION. Let's begin with those numbers. 651,000 people out of work just this last month. 8.1 percent unemployment.

So 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?

PETER ORSZAG, WHITE HOUSE BUDGET DIRECTOR: 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's not busy enough dealing with the economy, health care, all this other agenda, he's become a bit of a financial adviser to the American people.

At the White House this past week he said, "I would be up buying stock. There are 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)

BARACK OBAMA, PRESIDENT OF THE UNITED STATES: 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 tried 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 if you're 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 I'm 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're also inheriting. We've got a lot of work that we need to do. KING: But you -- 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...

ORSZAG: Right.

KING: ... when you get to all the programs. But here's 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 of 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: Well, 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 those assumptions.

KING: There's 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 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 a year.

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 would 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? Do you -- 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. Our -- the health reserve that's the significant down payment 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 health care -- 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 our 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're 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 -- we have said this is a significant down payment 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're 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're putting together this budget, you sat with the president, and you say, 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. President put forward a making work pay tax credit. In the campaign it was $1,000 per family. 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, president strongly supports helping low-income workers get back into the work force. The earned income tax credit works really well to help workers do that but there is part of the ITC, it's called the advanced EITC which does not work well. Claimed by fewer than 1 percent of taxpayers, EITC claimants doesn't work, we're 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 minute.

And among the topics, a rodeo museum in South Dakota. (INAUDIBLE) research in Iowa, the kind of pet project 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's 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 of 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 but...

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 into the ninth inning and you know, 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 is $1.7 million for pig odor research in Iowa, $819,000 for catfish genetics research in Alabama. Almost $209,000 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're 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 have -- 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 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 write -- when we are engaged in the fiscal year 2010 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, we're -- I want to come back. It's like we are stepping in in the ninth inning. You can't just redo the whole game...

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

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

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've been in office less than eight weeks. This was negotiated before we came into office. Our view is rather than -- you know, Washington is ripe with -- you know, 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: Well, 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 in the mission. 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 bank 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. But we're about to have the number two House Republican who will come in and join our conversation.

ORSZAG: Yes.

KING: 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 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, a Medicare system in 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're 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.

And as Peter's just noting, not everyone thinks the Obama team is on the right 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 with some very tough choices.

(COMMERCIAL BREAK)

DON LEMON, CNN ANCHOR: Don Lemon here at the CNN World headquarters in Atlanta. We'll get back to "STATE OF THE UNION" with John King in just a moment. But first, I want to give you some headlines.

Still no word on a motive in a deadly church shooting in Illinois. Police say a 27-year-old man gunned down the pastor of First Baptist Church in Maryville during a Sunday service.

The unidentified gunman's 45-caliber pistol jammed after he shot the pastor several times. He then pulled out a knife injuring himself and two church members who tried to tackle him. That man is in custody tonight.

President Barack Obama is talking about the recession and warning that it may take some time to complete an economic turnaround. Well, he tells "The New York Times," quote, this is a quote from him, "Our belief and expectation is that we will get all the pillars in place for recovery this year. How long it will take before recovery translates into stronger job markets and so forth is going to depend on a whole range of factors."

It has been a stormy day across parts of the Midwest. This is the aftermath of a thunderstorm, severe thunderstorms in parts of Indiana, packing high winds that knocked out power to thousands of people and also did some damage.

There were some minor property damage there and at least one person reported injured. There are also reports there that severe weather in Kentucky and a confirmed tornado on the ground in northern Ohio.

Our Jacqui Jeras is working on that and she will keep you on top of it, and update you at 10:00 Eastern here in the CNN NEWSROOM.

I'm Don Lemon. I'll see you right back here, 10:00 p.m. Eastern. Want to get back now to STATE OF THE UNION with John King.

KING: The Capitol building here in Washington on a beautiful, beautiful Sunday morning. "TIME" magazine described Congressman Eric Cantor of Virginia as the person brining 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 some day, sooner or later. He's going it say, boy, Obama had a good idea. 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.

REP. ERIC CANTOR (R), MINORITY WHIP: Good morning, John.

KING: Let me begin by giving you an opportunity to respond to the president and his budget director, who is 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 the Social Security, he says destroying Medicare. You were to say?

CANTOR: Look, I mean, I think that what we got to focus on the fact is this country is in a heap of trouble right now. And we 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 a 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's 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 inherited these trillions of dollars of deficits.

Well, if you've got a situation like that, how in the world should you be going to that 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 are talking about as the week came to a close is the spending freeze. How would the 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 are 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 at 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 Geithner at 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" in 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: Look, 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 America saw was pork barrel spending. A train from Disney World to Las Vegas, so I guess we can take more families into the blackjack tables.

Then the next was an $1,100 bill that Nancy Pelosi brought to the floor. And the House members didn't even get to read it, nor did the public have a 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, leading Democrat, 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 at what has happened in the last year, the collapse to these financial institutions and what any role their regulations might have had in that, what the institutions might have done wrong. Let's take a big picture, investigate it, 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 is no 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: 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: Want to veer off the economy for just a moment because the president is 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 it signaled during the transition that he wanted Congress to do that legislatively but they have now decided to issue an executive order. Bad idea, good idea?

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

CANTOR: Well, listen, John, we have been saying 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's a reason why all of 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.

You don't have any earmarks and your leader John Boehner doesn't have any earmarks. But if you look on the Republican side of the Senate, I want our viewers to look at this. The leader Mitch McConnell has nearly -- has $51 million of 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 call it how it is. First of all, 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 false position.

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

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 warded 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 largess. That -- 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 you said, a tender way to say it. There's been a debate in the past week between the 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 as saying, I'm trying to move an elephant that has 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 are 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. Come back any time. We'll continue the conversation. President Obama promised to change the way Washington works. But is the pork laden spending bill he's about to sign undermining his credibility? We'll ask Mary Matalin and Donna Brazile when STATE OF THE UNION returns.

(COMMERCIAL BREAK)

KING: Joining me now are two veteran political strategists. In New Orleans, Republican Mary Matalin, and with me here in Washington, Democrat Donna Brazile.

Mary and Donna, let's get first to this question about the economy and the spending bill coming President Obama's way.

I want to start with you, first, Donna, on the idea that Barack Obama said elect me, I am unique among the candidates for president, Democrat and Republican, that I'd be new to Washington. I will change the way it works on day one. And yet, they say they're going to sign this big, earmark-loaded spending bill.

Why not take a stand?

DONNA BRAZILE, DEMOCRATIC STRATEGIST: Well, first of all, John, this bill has been going through the process now for several months as you well know. It's an omnibus bill. It's President Bush...

KING: One of those great Washington words, omnibus bill.

BRAZILE: Well, because they didn't finish up all of their work at the end of their fiscal year and so this is a catch-all bill. But, look, the fact is that this $410 billion bill represents what many Democrats and Republicans believe to be the right programs to lead us forward.

Yes, there's earmarks in the bill, less than 1 percent of the bill, but overall it's a good bill. It has money for education, infrastructure and at a time when we're shedding 650,000 jobs, 100,000 jobs, we need to put forward a bill that will get the American people back to work.

KING: Mary, I want to bring you in, but first I want you to listen to both sides of the debate. Peter Orszag, the budget director was here early this morning, as was the number two House Republican, Eric Cantor. As you might imagine, very different views.

Let's listen.

(BEGIN VIDEO CLIP)

ORSZAG: This is like your relief pitcher coming into the ninth inning and, you know, 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.

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

(END VIDEO CLIP)

KING: So Mary, I know that he's not your president in terms of your political support for him, but should Barack Obama go to the Rose Garden and say no or should he just let this one go as last year's business?

MARY MATALIN, REPUBLICAN STRATEGIST: Yes, that was a really missed opportunity, politically and substantively. They keep saying it was last year's business. But so was Iraq and so was Afghanistan and so was stem cell. I mean this is -- he's the president today and they keep saying also that it's 1 percent of the GDP.

But in combination with the stimulus and the housing and the banking and all the bailouts, we're getting close to 40 percent of our GDP. If he would have said no to this, just say no, it would have sent a powerful signal to the markets who, every time he talks, they tank.

They don't have confidence in the plan. They don't have confidence in Geithner or his staff or his lack thereof. And this would have been the powerful symbol that he needed to do to give the markets the confidence they need to help kick start this economy.

KING: What impact will the stimulus have on the big cities stung by the troubled economy? Los Angeles mayor Antonio Villaraigosa gets the last word when STATE OF THE UNION returns.

(COMMERCIAL BREAK)

KING: Twenty-seven newsmakers, reporters and analysts were out on this week's Sunday morning talk shows. But only one gets to have the last word. That honor, we think it is an honor, goes this week to the Democratic mayor of Los Angeles, the newly re-elected Democratic mayor of Los Angeles, Antonio Villaraigosa.

Mr. Mayor, thanks for joining us on STATE OF THE UNION. Begin with...

MAYOR ANTONIO VILLARAIGOSA (D), LOS ANGELES: Hi, John.

KING: Good morning to you in L.A. I want to begin with a question I've asked other mayors. And I sense a growing sense of frustration. I was in Pennsylvania, Philadelphia last week, Winston-Salem, North Carolina just the other day. In both towns, the mayors, Democrats like yourself who supported Barack Obama, say we need that stimulus money but we can't get good answers on when it's coming.

Are you in the same position?

VILLARAIGOSA: Well, I'm in a little different position. I'll tell you why. First of all, I recognize that we're not going to fix this broken economy in two weeks or two months. If you look at history, we haven't been in a financial crisis like this since the Great Depression. We didn't get out of it in two weeks or two months. It took a decade.

And the fact of the matter, this is going to take time. We obviously want to get as much of that money on the streets and in our neighborhoods as quickly as possible. We want to make sure that metropolitan areas that generate 90 percent of the GNP are getting the biggest pot of that money.

But the fact of the matter is, just listening to those talking heads right now, it's broken. The system is broken. These people are fighting an election that they lost a few months ago. The nation has to come together.

In cities, people aren't as concerned with being a Democrat or a Republican. I happen to be a Democrat. They want you to fix things. They want you to get things done. And part of why we're not getting things done is you have people like some of the people that I just heard, who are continually taking shots at President Obama and his proposals and really don't have anything to offer except they're against, the party of no.

KING: Well, let me stay on the Obama administration for just a moment. In terms of the process, do you see Washington moving more quickly to get you that money or is it the same old Washington where the bill was passed through Congress with great urgency, the president said we need to do this now. But if you talk to mayors and governors, they say if you get to pass it so fast, why can't you send us the money so fast?

VILLARAIGOSA: Well, I'd like to see the money get on the ground as quickly as possible. They have to -- also with federal money and accountability and transparency that we want, they have to have some, you know, regulations or guidelines for how they -- formulas for how they disperse that money and that's going to happen.

I'm more concerned with what I just heard and what I've seen over the last few months. Partisan bickering, this angry party of no that continually tries to undermine the initiatives of this president.

KING: Well, let's talk about what might need to be done in the future. And as we do so, I want to look and put up for our viewers national unemployment numbers. The unemployment rate went up to 8.1 percent nationally in February.

You are the mayor of one of America's great and very diverse cities. If you look at unemployment rate among Asians, 6.9 percent nationally, among whites, 7.3 percent, among Hispanics, 10.9 percent, and among blacks, 13.4 percent.

As a mayor of one of America's most diverse cities where you have among Asians, Latinos, African-Americans and whites, the struggles in this high unemployment economy, do you believe that we will need more stimulus from Washington and perhaps some from state capitols as well given the depths of this economic crisis?

VILLARAIGOSA: Yes, I do. And in Los Angeles, our unemployment rate is documented at 12 percent. In October it was 8. In early January it was 10. And it's going up. The fact of the matter is, we're in a crisis. A crisis that does need immediate attention.

And you're right. I would like to see more stimulus. More stimulus around infrastructure. A lot has been said about earmarks. The fact of the matter is, not all earmarks are the same. If you have a bridge that goes to nowhere, anywhere in America, that connects the ducks to the geese, that's not a good thing.

If you have a bridge that's connecting the two largest ports in America, that's a good thing. That could be an earmark. If you have a subway to the sea that would be the most heavily used subway in the United States of America, and you earmark it, that's a good thing.

This talk about earmarks is the most ridiculous thing I've ever heard. What we don't want are earmarks that don't do anything to stimulate the economy and to really make the kind of impact in the infrastructure that we need in our cities and our states.

KING: Let me close by trying to keep a streak alive here. This is our "Last Word" segment. We call it on our program.

Last week in this segment, we had Neil Abercrombie of Hawaii. He sat on the chair, he delivered his passionate case for the "Last Word." Many says he's going to run for governor of Hawaii.

We have the mayor of Los Angeles just re-elected in the chair today. A potential candidate for governor of California when Mr. Schwarzenegger fades from the scene.

How about it, Mr. Mayor, you going to run?

VILLARAIGOSA: I love Los Angeles and I'm focused on this job. I want to get people back to work. I want to continue to build on the foundation that we've done in the past. My last word will be throw the bums out.

If these people can't accept that they lost an election, if they can't work with the president of the United States and get beyond the partisanship, they can't work together to put really money in stimulus, infrastructure projects, then they shouldn't be in the Congress representing the great people of this nation.

KING: Let me ask you a little bit about your political standing. There are some out there who say 55 percent against what they call the relatively weak field did not leave you in good stead should you decide to mount a statewide campaign.

Assess your political prospects right now when you look at the governor's race.

VILLARAIGOSA: Well, I'm focused on this job. Those people -- I have my own talking heads here in Los Angeles. None of them are on the field. They are Monday morning quarterbacks. The fact of the matter is, we won overwhelmingly. But the important thing is, that we've got a lot of work to do. I recognize that.

One of the things I saw as I went across this city is people are scared. They're fearful of losing their jobs, being able to put food on their table. Being homeless even. That tent city in Sacramento that I saw the other way was absolutely chilling. And we've got to do something about it. I'm prepared to roll up my sleeves and work across partisan lines, with business and labor, with everybody, with the Congress and the state to get the job done.

KING: You sound like an almost candidate there, Mr. Mayor. We will keep in touch as you make your decisions in the weeks and months ahead.

The mayor of Los Angeles, Antonio Villaraigosa. Sir, thank you very much for joining us today.

VILLARAIGOSA: Thank you, John, for the honor.

KING: Take care, sir.

And up next, we take you to North Carolina for a look at the fallout from a bad economy when it comes to health care choices.

(COMMERCIAL BREAK)

KING: Our travels this week to listen to you took us to North Carolina, a state Barack Obama carried in the election. We wanted to get a glimpse of the economy. 8.1 percent unemployment. Up from 5 percent a year ago. 92,000 jobs lost in the last year and among the 45 million people in the United States who don't have health insurance, about 2.5 million of them live in North Carolina.

So we're in Winston-Salem to look beyond those numbers at the personal stories people have to make in this 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.

DR. BRUCE WHAM, WINSTON-SALEM, NORTH CAROLINA: You didn't know you're going to have so much fun in one year, did you?

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

WHAM: They'd have to have a crown done or there's something they've been putting off, replace or restorations, a lot of them are very eager to get those out of the way while they still have the insurance benefits. 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 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 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.

DOUG PEGRAM, LACKS HEALTH INSURANCE: They just present you with a package and say today's your last day.

KING: Doug Pegram was given eight weeks severance when clothing maker Hanes Brands 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 camera): 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 move too much. All day every day. A lot of the 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: One type is you can have heart failure if you don't get checked out. So 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 Dr. Charges $150 a visit, cash up front. 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 him $160. But he now goes to a discount outlet where it is $127.

(On camera): So if you're an individual...

PEGRAM: Yes.

KING: ... you pay a lot more money?

PEGRAM: Exactly.

KING (voice over): Passing out insurance is a gamble Pegram boils 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, you know, and just hope for the best. 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: Doug Pegram there in Winston-Salem. We'll be hear again next Sunday and every Sunday at 9:00 a.m. Eastern for the first and last word in Sunday talk. Until then, I'm John King in Washington. Take care.

"LARRY KING LIVE" weekend begins right now.

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