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Senate Nixes Deficit-Cutting Panel; Bulk of Stimulus Funds Spent on Tax Relief

Aired January 26, 2010 - 17:00   ET


WOLF BLITZER, HOST: Rick, thanks very much.

Happening now, President Obama's proposed spending freeze gets a cool reception from many lawmakers only hours before he announces it.

Is the White House showing new fiscal restraint or is this political posturing?

I'll ask the budget director, Peter Orszag.

We're also breaking down the $787 billion stimulus package.

How much of your money went to creating jobs?

All this week, CNN is crunching the numbers and bringing you the facts.

And Haitians are fighting to stay alive right now three weeks -- it's actually a little more than two weeks after the quake. And their emotional scars may be slow to heal. This hour, Dr. Sanjay Gupta in a city of fear.

I'm Wolf Blitzer.


ANNOUNCER: This is CNN breaking news.

But up first this hour, breaking news happening right now -- an alleged attempt to tamper with the phones at the office of Democratic Senator Mary Landrieu of Louisiana. Four suspects have been arrested and charged in New Orleans, including a man believed to be a conservative activist. Our Congressional correspondent, Brianna Keilar, is working this story for us -- and, Brianna, information is just coming in, but we have received the affidavit from the FBI agent on the scene.

BRIANNA KEILAR, CNN CONGRESSIONAL CORRESPONDENT: We've received the affidavit, Wolf. And what's also very interesting about this is law enforcement officials believe one of four men who has been charged in this incident is James O'Keefe, who you may not know by name, but you probably know by a video that -- that he produced. He is a conservative filmmaker. And law enforcement official -- law enforcement sources believing that he is the same man who produced this video where, you may recall, he went into the offices of the group, ACORN. And in this video, which really kind of set YouTube on fire, he was posing as a pimp. He was with an accomplice who was posing as a prostitute. And they were asking for tax advice for running a brothel. And it appeared, in the video, that ACORN workers were giving it. This seriously damaged this liberal organizing group.

And so what we know from the affidavit, Wolf, is that two men, neither of them James O'Keefe, according to the FBI, went into the Louisiana, New Orleans office of Senator Mary Landrieu posing as phone company technicians, saying that there was a problem with the phone system in the office and asking to have access to it.

They actually were able, according to this affidavit, to access the phone at the front desk of the office, where they said there was a problem and that they would need greater access to the phone system in the office.

And, according to a witness, who told the FBI that James O'Keefe was actually in the office separately and that he had filmed part of what they were doing with his cell phone -- Wolf.

It's actually -- when you read the affidavit, it kind of has tones, sort of, of the Watergate break-in. But we're still trying to figure out exactly some of the details and some of the specifics -- Wolf.

BLITZER: All right. We're going to get some more information and we're going to be all over this story.

But I want you to get back to work and we have other reporters on the story at the same time. We'll watch what's happening in New Orleans right now. But the FBI making some serious, serious allegations in this affidavit, with -- which has just been released.

Lots of potential in this story. But we'll watch it, together with our reporters, so stand by.

Other important news, the president of the United States -- he's getting ready for his State of the Union address tomorrow night. When he goes before Congress, listen closely to how much applause he gets or doesn't get for his new plan to try to limit federal spending.

Senior administration officials tell us Mr. Obama will call for a partial three year spending freeze that would save taxpayers about $250 billion over 10 years. That's just a drop in the bucket for a federal budget that totals more than $3 trillion a year.

Look at this. Over half of the federal budget goes to entitlements and other mandatory spending. Those programs would not be affected -- like Social Security or Defense.

Defense and other national security, as I say, would not be affected at all. That means that the freeze would target about a fifth of the budget. Significant numbers, but in the scheme of things, not a huge amount of money. The president already is getting flack from both sides of the aisle for his partial spending freeze plan. Our Dana Bash asked Republican Senator John McCain for his reaction. You may remember, Mr. Obama rejected Senator McCain's call for a spending freeze during the 2008 campaign.


DANA BASH, CNN SENIOR CONGRESSIONAL CORRESPONDENT: He said that your proposal was a hatchet, not a scalpel.

What do you think of his?

SEN. JOHN MCCAIN (R), ARIZONA: I think that the president understands now how serious this problem is and that it requires hatchets and scalpels. It requires a hatchet to bring it under control and it requires a scalpel to eliminate the wasteful and unnecessary spending that characterizes so much of this bloated spending process we're in.

So I appreciate the fact that the president has changed his position since the campaign.


BLITZER: All right, let's go to Dana Bash, our senior Congressional correspondent -- what are you hearing, Dana, from the Democrats?

BASH: Well, there are some Democrats we talked to who actually think that this is a good first step, freezing at least some discretionary spending. And those are the -- the applause are coming especially from those that have tough reelection battles up -- coming this year and they are hearing anger from the voters back home about runaway Washington spending.

But, Wolf, as we suspected, there are liberals who are very unhappy about this and at least highly skeptical. One in the skeptic column is Sherrod Brown of Ohio. And I bumped into him in the hallway and here's what he had to say.


SEN. SHERROD BROWN (D), OHIO: You don't get the economy on track by -- by, you know, cutting spending on programs that are putting people to work on infrastructure.

BASH: Is that what you're worried about?

BROWN: Well, of course...

BASH: Are you worried about (INAUDIBLE)...

BROWN: I'm worried about it. I'm worried about -- we -- we know, from FDR on, that to grow the economy, you need to -- you need to do infrastructure, you need jobs programs, you need unemployment assistance and...

BASH: You think the discretionary spending freeze that the president is talking about will not let you do that?

BROWN: I'm concerned about it.


BASH: Now, what was really striking was the fact that the number two Democrat -- you see him right there -- excuse me, the number one Democrat in the Senate, Harry Reid, the Senate majority leader, he was lukewarm, at best, to this idea, Wolf. He is also up for reelection this year. He's from a state that has a lot of Independents, so, in a way, it was a bit surprising.

But he said, first of all, he's only heard bits and pieces from the White House on this. He said he's heard mostly from us, not from the president. But he's concerned, he said, about withholding funding for people in programs who need it, people like firefighters and police officers and programs like education.

And here's what's going on here. This is according to a Democratic source who sort of summed it up. You've got a lot of Democrats walking around, scratching their heads, saying that they can't believe that a Democratic president is proposing putting a freeze on programs that they think is important.

Now, politically, they get it. They think that he is trying to distance himself from the big liberal Washington spenders. But on the other hand, there is concern that the liberal base, already demoralized, in some respects, will be even more so from this idea of a spending freeze on some programs that they, perhaps, think are pretty important.

BLITZER: And we're going to ask Peter Orszag, the president's budget director, to comment -- to react to these accusations that the president has now flip-flopped on this spending freeze, based on what he said during the campaign and what he's saying now. That interview is coming up.

Thanks, Dana.

Two weeks after a magnitude seven earthquake decimated Haiti, we have some sobering numbers, indeed. Check this out. About one million of Haiti's nine million people are now homeless. Search teams have rescued 134 people from the rubble. Haitian and European Union officials estimate 150,000 to 200,000 people were killed in the disaster. Almost 200,000 more were injured.

Our chief medical correspondent, Dr. Sanjay Gupta, is joining us now from Port-au-Prince.

He's been reporting on efforts to help the staggering number of those who were hurt -- but it's not just physical injuries, Sanjay, is it?

There's more to it than that.

DR. SANJAY GUPTA, CNN CHIEF MEDICAL CORRESPONDENT: No question. And it is tough to hear those numbers, Wolf, even as you're saying them, just sort of contextualizing those in my own minute d, since so many of those physically injured out here. And, certainly, that's where a lot of the medical attention has been, and appropriately so.

But the emotional injuries do exist, Wolf. There's no question about it. And I can tell you, all of these aftershocks -- more than 50 aftershocks since the initial earthquake -- seems to open up these emotional wounds time and time again.

Take a look.


GUPTA (voice-over): Rumor of a big wave sends thousands running to higher ground -- many of them leaving behind the only possessions they recovered after the quake. These injured survivors begged doctors to leave them outside. They're too frightened to be inside.

DAVID WALTON, PARTNERS IN HEALTH: The Army Corps of Engineers has been here three times and has cleared several of these buildings. But every time there's an aftershock, every -- all of our patients run outside. You know, there's so much trauma, both psychological and physical, no one wants to stay. (INAUDIBLE) refuse to go into any buildings.

GUPTA (on camera): And here's another good example of exactly what we're talking about. This is a standing house, but there's nobody living inside.

It is hard to overestimate the impact of all these aftershocks on someone's psyche. They're so frightened. They don't want to be in there. They're worried that their house could come tumbling down. So instead, they live like this -- they live in these tents -- makeshift tents, because they simply want to be outside, where they think it's safe.

How scared were you?

KIMBERLY PIERRE, EARTHQUAKE SURVIVOR (through translator): Very scared.

GUPTA: It's been around two weeks now since the earthquake.

Are you still scared?

PIERRE (through translator): Yes, because from time to time they strike again and I'm very stressed and my heart is beating fast.

GUPTA: She says there's no one to help and she has nightmares of another quake.

How many people like you are there?

I mean how many people in Port-au-Prince are going through what you're going through?

PIERRE (through translator): Most of the people.

GUPTA: It is difficult to diagnose Post-Traumatic Stress Disorder less than a month after the quake. But we do know a few things. First of all, it is worse in people who have some sort of preexisting mental illness. People who have endured the most trauma or seen the most horrific images -- the best advice to them, try and be with family. But, also, turn to your faith, if you can. But it is difficult when even the churches have been destroyed.

(voice-over): So what does work?

Access to the basic necessities again -- clean water, food. And even what might be considered perks -- pillows, blankets, some sort of routine. No doubt, all of this is tough and it is dangerous to generalize. But there's also some simple evidence that it can work.

Today, this young boy builds a kite out of a paper plate. Despite the odds, he gets it flying -- bringing a smile to his face, and ours, for just a moment.


BLITZER: Sanjay, get back to this staggering number -- a million homeless people out of a total population of Haiti of nine million people. It's just so hard to comprehend.

GUPTA: It is -- it is hard to comprehend. And there's been a lot of focus now on this idea of relocating.

Do you create these relocation settlements some distance away from Port-au-Prince?

What are they going to look like?

Are people who are living there also going to have jobs helping rebuild the city of Port-au-Prince?

And, also, keep in mind, something that -- that's coming up, Wolf, is -- is hurricane season, which starts in May, as well. And I can tell you, it's very much on the minds of people here. Some of these areas where relocation possibly might happen are also areas where hurricanes hit pretty hard. So it's just -- it just -- there's a lot of -- a lot of factors here to consider -- Wolf.

BLITZER: Our heart goes out to these people. I know the international community is trying to do something, but the -- the challenge is simply staggering -- Sanjay, thanks very much.

We're going to have a lot more coming up from Port-au-Prince, reports from Anderson Cooper, Karl Penhaul. We're not going away from this story.

We'll take a quick break.

When we come back, Jack Cafferty.

And then, Peter Orszag, the budget director -- lots of questions to ask him.


BLITZER: Let's check with Jack for The Cafferty File -- Jack.

CAFFERTY: Wolf, President Obama has the chance to use tomorrow's State of the Union address to reset his agenda and refocus the attention of the American people.

It's been a rough week for the president and his party since the Democrats lost control of Ted Kennedy's Senate seat in Massachusetts. Without their filibuster-proof majority, the president's signature domestic issue of health care reform is on life support.

And the public doesn't appear too disappointed about all that, either. A new poll shows 70 percent of Americans think the Democrats' loss of their super majority in the Senate is a good thing.

Meanwhile, the president is expected to announce a three year freeze on all non-security federal discretionary spending. He claims this could save $250 billion over 10 years. That's a start. But it's a drop in the bucket considering this is a country that has a $3 trillion annual budget.

Expect some liberals -- you know, the president's base -- to push back hard on this idea. Already, critics on the left are calling the proposed spending freeze a mistake of historic proportions, some comparing Mr. Obama to Republican Herbert Hoover, who failed to pull the U.S. out of the Great Depression.

Others liken this to Democrat FDR's move to cut back on government spending in 1937. The economy tanked and so did the Democrats in the following midterm election.

There's a lot more on the president's plate, too, like the job situation, for example, which doesn't show any signs of turning around just yet. Unemployment is at 10 percent -- up from 7 when Mr. Obama was sworn in.

So here's the question, what should President Obama emphasize in his State of the Union address tomorrow?

Go to and post a comment on my blog.

You know, this guy is a great speaker. I'll bet you he's not exactly looking forward to having to do this one.

BLITZER: The pressure will be on tomorrow night -- a lot of pressure...


BLITZER: ...because millions and millions of folks will be watching.

CAFFERTY: And -- and you'll have like 20 people here in New York to pick it all apart when they're done, right?

BLITZER: We'll all be there, Jack.

Why do you say only 20?

CAFFERTY: Oh, there are more than that?

I'm going to get some extra chairs out of the basement.

BLITZER: All right, thanks.


BLITZER: Top members of the Obama administration are coming forward today to defend the president's State of the Union address even before he gives it tomorrow night. We have a lot of questions about his proposal to partially freeze federal spending for three years.

And joining us now, Peter Orszag.

He's the White House budget director.

And, Peter, Gloria Borger, our senior political analyst, is joining me in the questioning.

Listen to what the president repeatedly said during the campaign.


BARACK OBAMA, PRESIDENT OF THE UNITED STATES: The problem with a spending freeze is you're using a hatchet where you need a scalpel.



OBAMA: That's an example of an unfair burden share. That's using a -- a hatchet to cut the federal budget. I want to use a scalpel.

An across the board spending freeze is a hatchet and we do need a scalpel.


BLITZER: All right. All of a sudden, he's changed his mind.


PETER ORSZAG, WHITE HOUSE BUDGET DIRECTOR: No, no, no. He hasn't changed his mind. We are using a scalpel. This has taken months to put together. The total spending for non-security agencies is capped. But some agencies are going up and some are going down. It's not like every single agency is frozen. This is not a hatchet, it is a scalpel. We're going to be investing in the things that work, cutting back on the stuff that doesn't.

BLITZER: But it -- but remember, John McCain, when he was the Republican nominee, he said basically the same thing the president is now saying, that a spending freeze on what's called non-disc -- on discretionary spending, non-military or entitlement spending. And now the president has come around to what McCain supported during the campaign.

ORSZAG: No, well, I -- I don't think it was the same thing. And again, here's the key part. We have gone through the budget carefully. We're going to be investing in priorities like education. But we're going to be cutting back on things that, frankly, are -- are duplicative or inefficient.

Why spend $250 billion over 10 years that you don't need?

BLITZER: Well, just to be precise, McCain specifically said a spending freeze on discretionary spending, don't include the Defense Department, don't include entitlements like Social Security or Medicare.

So it sounds that the president has now come around to McCain's position.

ORSZAG: Well, I don't know about that. Again, the -- the key thing, from my perspective, is that we are holding the line on the total spending outside of security agencies and we're -- we're doing it in a way that allows investments in key priorities and cuts back on -- on inefficient or duplicative programs.

GLORIA BORGER, CNN SENIOR POLITICAL ANALYST: But here's what Robert Reich, a Democrat, said about the freeze -- in Politico today -- about the middle class. He said: "His three year freeze on a large portion of discretionary spending will make it impossible for him to do much of anything for the middle class that's important. Chalk up another win for Wall Street, another loss for Main."

So how can you propose, for example, a new jobs package for the middle class with a cut in discretionary spending?

ORSZAG: Well, I actually had the opportunity to speak with Mr. Reich today. I think some of the early reporting or early discussions about what we're doing were based on misunderstandings.

Here's the key point. We do need to be investing in job growth, especially this year. But as you go out over time, 2011, 2012, 2013, our out year deficits are higher than they should be and that will impede economic activity itself. We need to be getting more from our taxpayer dollars. There's nothing that we're doing here that will prevent us aggressively promoting job growth during 2010. And that is what we're going to be doing.

BORGER: So you're going to pay for those programs...

ORSZAG: In fact...

BORGER: You're going to pay for those new jobs programs?

ORSZAG: Well, no. The new jobs -- again, something in 2010 that's intended to promote job growth in 2010 is much different than what's happening out in 2012, 2013 and 2014. That's the focus of this freeze. That's what we're trying to get control of discretionary spending as you go out over time.

Again, I'm going to come back to saying there's nothing inconsistent between saying we need more job growth today and we shouldn't be spending money on programs that aren't working as well as they should be out in 2012.


ORSZAG: Those are not inconsistent.

BLITZER: The secretary of State, Hillary Clinton, seems to be concerned you're going to freeze State Department spending.

Are you?

ORSZAG: I -- I haven't heard her concerns. And again, this freeze applies outside of the Department of Homeland Security, outside of the Department of Defense, outside Veterans Affairs and outside International Affairs. So it doesn't apply to Secretary Clinton in any case.

BLITZER: None of her budget will be affected, is that what you're saying?

ORSZAG: There's a -- this does not apply to Function 150 of the budget. There's a very, very small part of the State Department that it's outside of that.

But, again, all -- you need to realize, this is not like we just sprung this decision and this freeze on folks. We have been working with cabinet agencies for months and months. Every cabinet officer has been involved. It's been a back and forth. And we're at -- we are where we are now because we have worked cooperatively with every cabinet agency.

BORGER: Here's what Josh Marshall at Talking Points Memo said today. He said: "I'm psyched. We're done messing around with major social reforms and finally getting down to the real business of election year gimmicks."

What's your response to the charge that although you say you've been working on this since last August, that the announcement now is a gimmick in response to what you saw happen in Massachusetts?

ORSZAG: Well, I guess what I would say is if we could transform the entire federal budget proposal, including all the documents that will be released on Monday, in the time since that election, my job would be a lot easier than it is. This is an intense process in which you go through, with each individual agency, detailed decisions on each account that they have. It takes months and months to do. And so, again, the numbers on the federal budget and the documents were even locked weeks ago. So it -- that's just inaccurate. It's not how the budget is put together.

BLITZER: Here's the -- one of the problems you have, is -- is that the American public thinks you're paying more attention to big business than you are to them.

Listen to the CNN/Opinion Research Corporation poll. "Obama has paid more attention to financial institutions, 60 percent; the middle class, only 28 percent."

You've got a problem there, Peter.

ORSZAG: Well, again, we are focusing -- one of the reasons that, among the very first things that the administration did was to get The Recovery Act in place, was because if you look back a year ago, we were on the verge of another Great Depression. We have avoided that outcome and that was, perhaps, the single most important thing we could do to help the middle class in terms of avoiding a very severe downturn.

Now, are we where we would like to be?

No. Unemployment remains too high. Middle class families have been struggling not just over the past couple of years, but for a longer period of time than that. It's one of the reasons why you saw some new proposals coming out of the Middle Class Task Force yesterday.

More needs to be done. But let's not forget what has already been done, which is we've avoided the catastrophe that many people predicted at the beginning of next -- last year.

BORGER: And -- and on a more personal note, I have to ask you, you've had more than your share of publicity lately.

And I just wanted to ask you, how does it feel to be on the front page of "The Financial Times" and in "People" magazine at the same time?

ORSZAG: I'm just focused on doing my job, Gloria.

BORGER: All right.

BLITZER: Peter Orszag is the White House budget director.

Thanks very much for joining us, Peter.

ORSZAG: Thank you for having me.

BLITZER: All right. Lots to assess on what's going on here in Washington on this, the day before the State of the Union address.

David Gergen is standing by.


BLITZER: Lisa Sylvester is monitoring some of the other top stories in THE SITUATION ROOM right now -- Lisa, what's going on?

SYLVESTER: Hi, there, Wolf.

Well, it's now illegal for commercial truck and bus drivers to text while driving. Under new federal guidelines announced today by Transportation Secretary Ray LaHood, commercial drivers caught texting could face civil or criminal penalties up to $2,750. LaHood calls the ban an important safety step to eliminate the threat from distracted drivers. A federal study shows drivers who text are more than 20 times more likely to get into an accident than a non-distracted driver.

And G.M. is agreeing to sell its Saab car line to Dutch automaker, Speicher. The deal is a lifeline for Saab and its 3,500 employees in Sweden. Saab has lost money for years under G.M. ownership and it was slated for liquidation. Under the terms of the sale, G.M. will get $74 million in cash and more than $300 million of preferred shares in Saab.

And you've got to take a look at this amazing basketball shot that's gone viral on YouTube.


SYLVESTER: Did you take a look at that?

OK. The star shooter is a high school basketball coach from Kansas. And, yes, he made that half court shot. He was blindfolded and it was after students spun him around. Now, students bet the coach tickets to the NCAA championship that he couldn't make the shot. And, you know, the only problem, though, is they didn't really have the tickets, thinking, of course, there's no way that he was going to make the shot. But they did buy him a restaurant gift card.

I don't think it's quite the same thing, but what an amazing shot, isn't it -- Wolf?

BLITZER: Yes. I don't know if he could have done it without the blindfold, but he did it, so good for him. Very, very impressive. All right...

SYLVESTER: Yes, the next stop is the NBA, right?

BLITZER: Maybe. You never know.

Good work, Number 71.

All right. Thanks.

We're going to get back to you, Lisa.

She's got all the updates for us.

All right, I had a chance earlier today to sit down with the former U.S. Supreme Court justice, Sandra Day O'Connor.

We spoke about a lot, including the latest Supreme Court decision on campaign finance.

Stand by.


BLITZER: Updating the situation in Haiti right now, Saudi Arabia's foreign ministry has announced that the kingdom is contributing $50 million to the relief effort. It says it will be distributed by to the United Nations Fund established for Haiti.

In Port-au-Prince today, a crush of hungry Haitians at a distribution point in Port-au-Princes reaches near chaos. U.N. troops used pepper spray to control the crowd. Some people did get food at the site, but it ran out very quickly. Up to 800,000 people are living in makeshift camps already. Many have nowhere to go. Others are too afraid to go back inside because of the aftershocks. Relief groups say 200,000 family-sized tents are needed, and they're needed right away. And the State Department says almost 500 Haitian orphans have been evacuated to the United States since the earthquake. Lawmakers are pressing for legislation to streamline the entire adoption process. Much more on Haiti coming up. We'll have reports from Anderson Cooper and Karl Penhaul.

The former Supreme Court justice Sandra Day O'Connor is now speaking out about a controversial ruling by the high court last week. The court gave big business, unions, other special-interest groups more power to spend freely in federal elections. The decision threatens a century of government efforts to try to regulate the power of corporations to bankroll American politics. Justice O'Connor sat down with me today at Georgetown University Law School for an exclusive TV interview.


BLITZER: What do you think of that decision the other day?

SANDRA DAY O'CONNOR, FORMER SUPREME COURT JUSTICE: Well, I haven't even finished reading the 170 some odd pages. I'm in the process of it now. It did overrule in effect a decision which I did help write in 2003, dealing with the McCain/Feingold act. We upheld it in that 2003 decision, and a majority of the present court overruled a portion of that case.

BLITZER: It was 5-4, the decision.


BLITZER: If you had been on the court, I assume you would have been with the four?

O'CONNOR: Well, let's let that be. I'll refer you back to my opinion in that case, and it differed from the holding of the present. BLITZER: I know this is an issue, now it's going to open up the floodgates for campaign fund-raising by the corporations, the labor unions, other special interests?

O'CONNOR: Well, I hope that it won't. It could. It has that potential.

BLITZER: Are you worried about that?

O'CONNOR: Well, of course I'm worried about it, because so much money has been going into judicial campaign races in recent years.

BLITZER: And your concern is with all this political money going into races, especially judicial races in the states, it could have a, what?

O'CONNOR: Well, it has the effect of turning judges into these politically elected figures in arms races, if you will, by people with the means to support them.


BLITZER: All right, we're going to have a lot more from Justice O'Connor in this exclusive interview. We're going to bring you much more on Thursday right here in "The Situation Room." Stand by for that. She's a very wise woman and she's got a lot to say.

On the eve of President Obama's State of the Union address, many Americans are questioning his priorities. Our new CNN/Opinion Research Corporation poll asked if Mr. Obama has paid enough attention to the most important problems. Forty-five percent say yes, 55 percent, that's more than half, say no.

Meantime, the Senate is throwing cold water in a bid by the president to ease the deficit. He had backed a plan to establish a bipartisan deficit reduction commission, that could make tough choices about tax hikes and spending cuts. The Senate, though, rejected the idea today. Let's get some perspective from our senior political analyst David Gergen. What did you think about this action today, David?

DAVID GERGEN, CNN SR. POLITICAL ANALYST: It's another blow to our prospects for bringing the deficits under control. Just today, as you know, Wolf, the Congressional Budget Office released new projections about the deficits. And they said this coming year, we're going to have deficits of $1.35 trillion owned just a little less than this past year.

That means that of all those federal spending, we're only paying for two thirds of what we spend. The revenues are only two thirds of what we're spending. No family operates that way, so we're running these terrific deficits and we're about to have an explosion in so- called entitlement spending. That means Medicare, Medicaid, Social Security, especially as the baby boom population retires. Those numbers are going to go right up. This commission idea was intended to get at those entitlements and to get at the tax revenue to help close that gap of one third. And in order to be effective, it needed teeth. And what the Congress did today was to take the teeth out of it. And that is not only a setback here, but it is going to cause a lot of our foreign creditors to really question are we going to pay our bills, or are they going to start raising interest rates? And that would be very dangerous indeed.

BLITZER: Yeah, because the only other option is to raise taxes. And there's not a great appetite among a lot of Republicans and many Democrats to do that. And if you're not going after Social Security, Medicare, Medicaid or defense spending, which is sort of eliminated, that's where most of the money is.

GERGEN: That's what Willie Sutton would say. He would have to go after entitlements, because that's where the money is, and that's why you rob banks, as he said, that's where the money was. So I must tell you, on the eve of the president's State of the Union address, neither this so-called freeze, when we're -- where the president announced to some fanfare yesterday, freezing our discretionary spending at 20 percent above what it was when he came into office hardly sounds like a lot of sacrifice to most creditors. Now on the entitlement front, to look like we're going to duck that as well, I think these are troubling omens for where we're heading on the deficit front.

BLITZER: We'll see what the president says tomorrow night. We'll be watching and listening very closely. David will be with us throughout the night tomorrow as well, as he always is. We'll take a quick break. There are some trapped tourists in Peru right now. We'll tell you what's going on after this.


BLITZER: Let's check back with Lisa, she's monitoring some of the other top stories from "The Situation Room" right now. What else is going on, Lisa?

SYLVESTER: Hi, Wolf. A mudslide on Peru's Inga Trail to the Machupichu has killed an Argentine tourist and her guide. Days of flooding have killed several other people and stranded almost 2,000 tourists at a village near Machupichu. Dozens of them who were sick and elderly have been airlifted out. The only train route to the ancient Inca ruins is completely blocked.

And New York Mayor Michael Bloomberg, he says he's not interested in running for president in 2012. Speculations about his political ambitions ramped up after he hired Hillary Clinton's former media strategist as a political policy and communications adviser, but the mayor says hiring Howard Wolfson does not mean that he's planning a future White House bid.

And the brother of Olympic figure skater Nancy Kerrigan is undergoing a psychological evaluation after being charged with assaulting his father, who later died. Family members say Daniel Kerrigan died of a heart attack and his death was not related to an argument he had with his son Mark. Mark Kerrigan has pleaded not guilty to the assault charges. Autopsy results on his father are pending. Wolf?

BLITZER: Just to point out, Howard Wolfson did work for the mayor and his campaign to get himself reelected, so they do have a relationship. That's my understanding.

SYLVESTER: We'll see if it means anything though in the future, the fact that he's back on board.

BLITZER: You never know, he's an impressive guy, Mayor Bloomberg. We'll see what he does. Thanks very much, Lisa, for that. We'll take a quick break and continue our coverage, the latest from the stimulus project that we're working on. Also we'll update you what's going on in Haiti. That's coming up.


BLITZER: The stimulus plan is designed to help jump-start the economy, and especially put Americans back to work. Is it turning into jobs for you? This week CNN steps outside the box, unleashing hundreds of journalists to dig deep and examine the facts. Our senior correspondent Allan Chernoff is one of them. He's here in Washington in "The Situation Room" taking a closer look at what's going on. And what do you see?

ALLAN CHERNOFF, CNN SR. CORRESPONDENT: Wolf, the fact is that the stimulus really hasn't done all that much to create new jobs. The vast bulk of the Recovery Act spending so far simply isn't going into jobs programs. The majority of the billions paid out in the first 11 months of the stimulus plan has gone for tax relief and for Medicaid expenditures. And some of the jobs created, well, they're not putting a dent in the unemployment rate, because many of the people hired have little problem finding work.


UNIDENTIFIED FEMALE: Take a big breath in and hold it.

CHERNOFF (voice-over): Dr. Suzanne Walker could easily find a higher paying job. Her skills are always in demand. But she chooses to serve the underserved at this nonprofit health clinic in Queens, New York, which is expanding thanks for federal stimulus funding.

DR. SUZANNE WALKER, COMMUNITY HEALTH CARE NETWORK: Our agency, Community Health Care Network, is still hiring, looking for very good people, people who are dedicated to providing good health care.

CHERNOFF: Like Suzanne, the clinic's new employees, seven thus far, also could likely find work elsewhere, since health care is largely recession-proof. That means Recovery Act funding for Medicaid clinics like Community Health Care Network is having no impact on the unemployment rate, says Chris Mihm of the Government Accountability Office, which tracks federal spending. CHRIS MIHM, GOVERNMENT ACCOUNTABILITY OFFICE: That has not created an awful lot of jobs and there wasn't a great deal of expectation that that would create jobs.

CHERNOFF: The fact is three quarters of all stimulus spending thus far, $190 billion has gone either for entitlement programs, mainly Medicaid, or tax relief, neither of which does much to create any jobs. As the so-called stimulus spending continues, two thirds of the entire Recovery Act budget is for these two categories, not for jobs.

What the money is doing is providing sorely need help for those hit hardest by the recession, Americans on Medicaid and those without health insurance.

The economy turned down. What happened to demand here?

CATHERINE ABATE, CEO, COMMUNITY HEALTH CARE NETWORK: The demand increased. We saw a huge percentage of increase this year, and again the uninsured rate is increasing, is because people lost their jobs, they lost their coverage.

CHERNOFF: The private companies in state and local governments that have received stimulus money claim they have created or saved more than 600,000 jobs. But the Government Accountability Office finds that number is unreliable. Some employers are counting part- time jobs as full time, and others reported jobs, but said they had received no stimulus funds.

The real job-producing stimulus funding has only recently begun to be distributed. Money for construction, roads, bridges, and even here at Community Health Care Network, an expansion to build 20 new exam rooms that should put 70 people to work.


CHERNOFF: And that kind of spending will extend all the way out to the end of the decade. So far, though, the Recovery Act has been more of a social safety net than a jobs building program. Economists say the recession will be long over before stimulus spending actually has a big impact on expanding employment. Wolf?

BLITZER: So Allan, was it always unrealistic to assume the stimulus package would jump-start employment?

CHERNOFF: Absolutely. As we pointed out in the piece, the money up front was all about tax cuts, helping out Medicaid and then when you do have contracts for roads, bridges, for whatever, it takes time to bid those out competitively. So that is not an instant fix to the employment problem. That's why unemployment is 10 percent now.

BLITZER: And it was 7 percent when the administration took office, 10 percent now.

CHERNOFF: Big increase. BLITZER: Let's hope it goes down. Thanks very much, Allan Chernoff, for that. Ali Velshi is standing by. We're going to check in with him over at the Stimulus Desk. Also Jack Cafferty and "The Cafferty File" when we come back.


BLITZER: Let's get right to Jack for "The Cafferty File." Jack?

CAFFERTY: The question this hour Wolf, is what should President Obama emphasize in his State of the Union address tomorrow?

Penny writes from Bellevue, Washington says, "He ought to say he's on the side of Main Street, not Wall Street, now. If a bank gambles and goes wrong, the individual depositers will be reimbursed up to the FDIC limits and the bank can fall. No bailouts. If there was any fraud or other illegal activity, people will go to jail. I still haven't seen anyone go to jail for their part in almost causing a second Great Depression. I want to see some accountability."

Anonymous writes, "Obama ought to telegraph he's done with being Mr. Nice Guy and that his efforts to reach across the aisle have been spurned at every turn, give examples. Therefore, the Dems will plow ahead with their own agenda. The theme of the night should be get on board or get out of the way."

Mary Jo in Pittsburgh, "He ought to say he's sorry for worrying too much about what conservatives think of him instead of the majority of the American people who voted for him think of him."

Tom in Wisconsin, "The president should accentuate the positive. He had the audacity to hope we would not panic facing down Great Depression part two. Obama played the role of FDR to a "T" and few of us in fact panicked. If Americans have half the guts that Haitians have, there won't be any whining and it will be left foot, right foot until we march out of this mess."

Luke writes, "President Obama should talk about his lived experience and talk about his passion. It's not enough to sway to the winds of political opinion. One must feel the passion of conviction and then fight for it. Anything less is not worthy of a president."

Theresa says, "Who is advising this man? Maybe that is the problem. It's time to take off the rose-colored glasses and see the mess with clear vision."

And Lou in North Carolina, "Try to remember what he promised and address those issues one by one. Otherwise he is no different from the one before him."

If you want to read more on the subject, you'll find it at my blog Wolf?

BLITZER: Will do, Jack, thank you.

With the State of the Union address tomorrow night, there will be plenty to talk about whether or not the president's stimulus plan has actually worked. Our ongoing investigation into the stimulus plan will give us some smart talking points, facts about what's working and what is not working. Our chief business correspondent Ali Velshi is over at the Stimulus Desk, as we like to call it at the CNN Center checking all the facts for us. One fact, it looks now like that $787 billion package is now what $862 billion, it just overnight got bigger?

ALI VELSHI, CNN CHIEF BUSINESS CORRESPONDENT: Well, here is what happened. The $787 is what the bill was when it passed and it was based on certain assumptions. The White House, the Congressional Budget Office, everybody has got to make assumptions as to what things are going to look like. Well, unfortunately some things look worse than they were, including unemployment.

Let me break down the $862 for you -- $288 million goes to tax relief of different sorts, $191 billion goes toward public assistance, that's unemployment insurance, food stamps, things like that; $129 billion goes toward health programs; $105 billion towards education; $67 billion toward energy, $48 billion, these are these highway projects, infrastructure, things like that, and $38 billion are other.

So you can see how this grows. Here Wolf is the problem. This is where unemployment is higher than expected, food stamps, more people need it than expected, so this has jumped up. The total has increase from $767 billion to $862 billion, an increase of $75 billion because some parts of the economy are worse than the White House and the CBO, the Congressional Budget Office assumed they would be, Wolf.

BLITZER: Yes, because they projected 8 percent unemployment, it's really now 10 percent. That's a significant number more people unemployed. Ali, we're going to come back, thanks for doing this work for us. Thanks to your entire team.

We'll take a quick break. Haiti, there are new developments unfolding right now in Port-au-Prince. Stand by.


BLITZER: Let's get right to our Strategy Session. Joining us now, Hilary Rosen, the CNN contributor, the Democratic strategist. And Alex Castellanos, our CNN contributor, the Republican strategist.

Alex, the Democratic Senatorial Campaign Committee, they have released a new memo showing what they say has been an effort by the Republicans to embarrass the president. I guess this memo says this, do you believe that Barack Obama is a U.S. citizen? This is sort of like the Census. Do you think programs like Social Security and Medicare represent socialism and should never have been created in the first place? Do you think President Obama is a socialist? Now what's going on?

ALEX CASTELLANOS, REPUBLICAN STRATEGIST: I think what the Democrats are trying to do is define Republicans as some wacky, out of the mainstream conservatives. That's their election strategy for the next lap. You know, when you can't win the race on your own, sometimes you think it's smart to try to trip your opponent and that is where the Democrats seem to be now.

Creigh Deeds tried this in Virginia, the Democratic candidate for governor running against Bob McDonnell and it didn't work for him because right now voters are more concerned about the Democrat in the front seat driving the car over the economic cliff than they are the Republican in the back seat and whether he is mainstream or not. So again, the Democrats kind of need to fix their problems on the economy and voters are just not concerned about the social issues right now.

BLITZER: I think I misspoke, this was a Democratic Senatorial Campaign Committee memo asking Democratic candidates to pin down their opponents on these issues.

HILARY ROSEN, DEMOCRATIC STRATEGIST: It doesn't seem particularly smart to me to try and distract from the issues that, you know, voters overall still like this president, and when we have had Republican wins, those Republicans have actually run away from the traditional Republicans in Congress.

So, the biggest thing that Democrats will have going for them in this next election will be the fact that over the course of the next year as we are tackling the economy, as we're tackling jobs, as we're tackling energy and financial reform, that the Republicans will still favor doing nothing, and that is ultimately not what the American people want.

BLITZER: Here is something interesting happening in New York State for the Democratic Senatorial nomination. Kirsten Gillibrand is the incumbent Democrat. She succeeded Hillary Clinton. Harold Ford Jr., the former congressman from Tennessee, now lives in New York -- on a radio station in Albany, he said this. He said, "Understood that you're not elected to the United States Senate to be a parakeet or to take instructions from the Democratic leadership." This little fight between the two of then is heating up.

ROSEN: It could get nasty. I don't think any Democrats want to see a huge amount of money being spent on a primary this year. We're going to need everything we have for the general election. Harold Ford is a compelling candidate, but Kirsten is a good senator and I think that ultimately she's going to prevail.

CASTELLANOS: She's a tougher candidate, I think, than Harold Ford thinks. And by the way, he's not even in the race yet, and he is already running the worst campaign ever. He is saying, you know, when I ran in Tennessee, people said I was more liberal than I actually was. Now I'm in New York, but people don't understand how liberal I actually am. And he's attacking with a general election strategy. He's attacking her for being too loyal a Democrat. You don't do that in a primary.

BLITZER: Here's how she responded. She said, "I would not allow that kind of name-calling from my 6-year-old son and I certainly don't think it is appropriate for someone who says they want to be a senator from New York."

All right, this going to get pretty tough in New York State, I assume but people in New York are used to it.

ROSEN: They are used to it.

BLITZER: Let them enjoy. Thanks very much guys, we'll check back.