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JOHN KING, USA

Deficit Talks Break Down

Aired July 22, 2011 - 19:00   ET

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


JOHN KING, HOST: Thanks Wolf and good evening everyone.

A dramatic night of breaking news both at home and overseas -- terror strikes a major European capital known for its tranquility, first a powerful explosion outside Norway's main government complex in Oslo.

(BEGIN VIDEO CLIP)

UNIDENTIFIED MALE: The entire building, the hotel, the tower in downtown Oslo, and it just shook, the concussion absolutely blew me away, and it seemed as if my bed had been struck by lightning.

(END VIDEO CLIP)

KING: Then an assassin dressed as a police officer opens fire at a summer camp for Norway's Labour Party (ph), sending the panicked teenagers scrambling for cover.

(BEGIN VIDEO CLIP)

UNIDENTIFIED MALE: They were hiding in caves and bushes and shelters and trying to make as little noise as possible because they were scared for their lives because of the shooter.

(END VIDEO CLIP)

KING: Tonight as Norway and the world asks why, the death toll is growing. Seven killed and 90 injured in that downtown explosion. At least 10 shot to death at the summer camp shooting spree.

But up first tonight, stunning new drama in the debate over deficit spending in Washington and the prospect of a historic government default just 10 days from now. Republican House Speaker John Boehner tonight calling off negotiations with President Obama saying the Democratic White House is too gung-ho about raising taxes and too timid when it comes to squeezing money from Social Security and Medicare. As Speaker Boehner sent his colleagues a stunning letter explaining his decision, an angry president came to the White House briefing room with a passionate rebuttal.

(BEGIN VIDEO CLIP)

BARACK OBAMA (D-IL), PRESIDENT OF THE UNITED STATES: This was an extraordinarily fair deal. If it was unbalanced, it was unbalanced in the direction of not enough revenue. But in the interests of being serious about deficit reduction, I was willing to take a lot of heat from my party, and I spoke to Democratic leaders yesterday, and although they didn't sign off on a plan, they were willing to engage in serious negotiations.

(END VIDEO CLIP)

KING: So, now what is the big question? Speaker Boehner will rebut the president just about 14 minutes from now. We'll take you there live. In his letter to his colleagues, he says his preference now is to work on a plan in the Congress. But the president expects the House and the Senate leaders of both parties at the White House Saturday morning.

Is this just theater before a deal or a recipe for gridlock and maybe an economy shattering government default? Chief White House correspondent Jessica Yellin, congressional correspondent Kate Bolduan, and chief political analyst Gloria Borger here -- Jess, I want to start with you. The president gets word the speaker does not want to negotiate with him anymore, and this is not a president known for his anger or his temper, but he seemed pretty piqued.

JESSICA YELLIN, CNN CHIEF WHITE HOUSE CORRESPONDENT: This was the president hitting by far his most frustrated, fed-up note during the debt negotiations by far, John. We heard him say that the Republicans just don't know how to say yes. That he offered the most generous package he could. In short he said that he offered them a deal that Democrats just didn't like. He was basically saying he was enraging his own party, how could the Republicans not accept this deal?

He has called all parties to the White House at 11:00 tomorrow morning to just get something done. And it was an odd day here at the White House from what I can tell. I am told that -- by Democrats that the president put in a call to Speaker Boehner this morning and was told that the speaker was not available to speak to him. Sometime this evening reporters were told by Speaker Boehner's office that a deal was off, and after reporters were briefed, that's when the speaker called the president to tell him the deal was off. So, no doubt that has fed into probably the president's frustration this evening, and we will hear further details about just what broke this deal down. But I'm told it is essentially over tax revenue and just how both sides would be forced to the table to deal with taxes in the future -- John.

KING: And so, Kate, a big test for the speaker just moments away. The president has the bully pulpit; the president at the moment at least seems to have public opinion, being the polls on his side, the American people nationally. Now a lot of these House members run in their districts, they don't care about national polls. But nationally the poll says the people essentially want a deal that has some taxes and then spending cuts. What are we going to hear from the speaker just a few minutes when he comes back? I assume he disagrees quite vehemently with the president's portrayal of events.

KATE BOLDUAN, CNN CONGRESSIONAL CORRESPONDENT: I was just going to stay that, John. We got a very different version of events when we were hearing from some House Republican sources of really what happened. The way it was kind of laid out, we got into a lot of detail, but in a very broad sense what we heard is that Speaker Boehner, that they were working towards a framework, a very significant element having to do with taking on all of the tough stuff, we're talking about changes to entitlements and that they had generally agreed to on the issue of tax reform, lowering rates and taking that on.

What we're told from these congressional sources is where it all began to unravel, in their opinion, is when the gang of six here in the Senate, this bipartisan group of senators, came out with their long-term debt reduction plan. The White House in their words pulled back and began pushing for a higher revenue number than what they had agreed to, and at that point the general perspective I guess from Speaker Boehner's office is that from House Speaker John Boehner is that things were not going to go anywhere. And one line in this letter that he sent to all of his House members this evening really sums it up, John.

He says "In the end we couldn't connect, not because of different personalities, but because of different visions for our country." And Speaker Boehner now believes that the vision for how to move forward and to beat this deadline, this August 2nd deadline, if they can, is going to come from here on Capitol Hill between his -- Republican and Democratic leaders in the House and the Senate, but when we -- when they were pressed on the issue of what is the path forward, the clock is ticking. They said there is no path forward quite yet. They're not making any judgments or assumptions. They understand they've got to get working because they believe they need to unveil something to their members Monday.

KING: Kate Bolduan, stand by on Capitol Hill, as we wait for Speaker Boehner. He's about 10 minutes away. Gloria Borger, I'm going to play a little contrarian here. I'm going to say that both the president and the speaker needed this moment. The speaker had suspicions of the Tea Party members that he was cutting a deal that had taxes; he needed to prove he was going to push this president away.

GLORIA BORGER, CNN SENIOR POLITICAL ANALYST: Yes.

KING: The president woke up this morning. The loudest cries were not from Republicans. They were from liberals saying how dare you? We're going to deliver petitions to your campaign. We're not going to raise money for you. We won't work for you. We might not even vote for you, Mr. President, so this day ends very differently than it began. And I think in the end it might serve both the speaker and the president's purposes just fine.

BORGER: Well, it may provide each of them with a little bit of political cover, if that's what you're saying, because the president can say, OK, I was willing to take the heat. The speaker says, look, I represent you, my House Republicans. I represented your caucus. And now in the end, maybe they're going to have to take the backup plan, which House Republicans did not like because it did not contain enough deficit reduction. So, I think you're probably right. But I think we're probably not going to get to the grand bargain. I think we're going to have the Band-Aid through 2013.

(CROSSTALK)

KING: A lesser bargain -- I want to play something. I had an interview last night. I was filling in for Anderson Cooper. I interviewed Tom Graves. He's one of these new Republicans. He's from Georgia and he is very proud of the plan they passed in the House. And this is part of the speaker's problem. These Tea Party members, the freshmen especially, they control the House and they would like to control Washington, and sometimes it's hard for them to understand the Democrats control the Senate. The Democrats control the White House, but listen to Tom Graves on the question of should you compromise.

(BEGIN VIDEO CLIP)

REP. TOM GRAVES (R), GEORGIA: This is no time to compromise, we've had years and years and years of compromises and that's led to $14 trillion in debt, and if we're going to get out of this mess, we've got to hold firm to what we know are the true solutions.

(END VIDEO CLIP)

KING: One of these issues -- Jess to you first -- that the White House -- Speaker Boehner might be better off negotiating with Leader McConnell, Leader Reid and Leader Pelosi, because if you ask these Tea Party members, who is nemesis number one, it's President Obama, the Democrat in the White House.

YELLIN: That's right, because he doesn't need to be seen sitting down with the president. That's part of the reason he has been -- his meetings here have been kept so secret. But it still remains that he has to make this fundamental choice, will he put enough in a deal that will win him Democratic votes in the House of Representatives and that remains to be seen.

KING: And Kate, the speaker has a tough calculation, because if you just give the president the authority as some conservatives say, fine, let's kick this one down the road until the 2012 presidential election. We'll fight about taxes. We'll fight about spending again; give him the authority to raise the debt limit. Congress could do that, but then those new Tea Party members, that new Republican majority doesn't get the cuts they wanted.

BOLDUAN: Well and that's been a big part throughout these discussions, these negotiations, this debate that we've been watching, the big question has always been, John, and you've noted it, what about the House? What can the House accept? And that is a calculation that Speaker Boehner is going to have to take into account. I assure you that he has been taking into account. So, on the question of the path forward, this Reid/McConnell fallback plan, that has not been appetizing for many members in the House of Representatives on the Republican side, so at first read, that does not have the support to pass. There's now the growing conversation about some kind of a short-term smaller kind of extension, some $1 trillion to just kind of move this thing forward, but the president just this evening said that he doesn't want to accept that.

KING: It is a mess. Kate Bolduan, Jessica Yellin, and Gloria Borger are going to stay with us. The Reid/McConnell plan or the McConnell/Reid plan if you haven't followed this closely would essentially let the president raise the debt ceiling on his own, it would give him the power to raise it three times between now and the next presidential election, and there's a debate about whether along with that would come spending cuts or votes on cuts, but the president would get the power so Republicans would never have to vote to increase the debt ceiling. That is one proposal. It's pretty complicated and it's your money at stake, your economy that could be at stake. Speaker Boehner just moments away, stay with us. We'll be right back.

(COMMERCIAL BREAK)

KING: A dramatic night of breaking news in Washington. Just moments away the Republican House Speaker John Boehner will rebut the president of the United States over the breakdown in talks to get a deficit reduction agreement and raise the government's debt ceiling. This plays out, you know we often say elections have consequences and this debt and spending debate is proof positive. If you're surprised or mad at the House Republicans for advancing their plan, well, frankly, you shouldn't be. Remember we had an election in November, and the Republicans won big time and they won with promises like this --

(BEGIN VIDEO CLIP)

UNIDENTIFIED MALE: Spending is out of control. Foreign debt threatens our economic and national security.

UNIDENTIFIED MALE: We're at the (INAUDIBLE) government spending that threatens your future with a burdensome debt.

UNIDENTIFIED MALE: Stop wasteful spending by requiring a balanced budget by law.

UNIDENTIFIED MALE: The federal government is spending way too much money.

(END VIDEO CLIP)

KING: So as you watch this showdown, now remember this is what they promised to do and aren't we supposed to be impressed when the politicians keep their promises? Let's look at it this way. I want to bring up this map here. This is the map, all the red of the House districts won by Republicans in 2010 when they took back the majority. Watch all that red.

The other night the House voted on what they call "Cut, Cap and Balance". It's their plan, gives the president his debt ceiling increase, but cuts a lot of spending, caps spending. Look at this. That's how the election went. That's the vote on Cut, Cap and Balance. Remember the red? You vote for this. You get this. That's how it turns out. So, what's happening in Washington is exactly what you voted for last November, except here's the problem. Those Republicans and here's a big question for the Republicans going forward, the problem is this. Some of you have changed your mind. In January, nearly half of Americans say congressional Republicans would move the country in the right direction. Meaning they're doing the right thing.

Now, just 37 percent say that. Plus, controlling the House does not translate into controlling Washington. And the question now is whether the anti-spending freshmen class is ready to accept that obvious, but perhaps painful civics lesson. We're about to find out. And it's a messy process to say the least.

Jessica Yellin, Kate Bolduan and Gloria Borger is still with me as we wait for the speaker to come out and we're waiting. It's less than two minutes until we hear from the speaker, Gloria. That is the challenge in the sense that he has a relatively short leash, by career, by DNA, a dealmaker, but he's never been in a position like this.

BORGER: You know and he's been in Congress so long and he clearly is in Congress to get things done, and when he originally was talking to the president, there was a deal that they were talking about that was $3 of spending cuts for every dollar of tax increase. That's a lot of spending cuts. If you've been around Congress for as long as John Boehner's been around Congress, but he's also got a flock he's got to lead. He didn't get them here probably, but now he's got to lead them and that's his difficulty.

KING: And it's hard because a number of them are new to politics, period, and I'm not saying they don't understand how it works, but they came here full of zest, full of the new majority.

BORGER: Sure.

KING: They wanted to repeal the Obama health care plan. They couldn't do it. Now they want to get their way on spending and deficit reduction and they simply can't. And so -- and some of them, some of them and again to their credit -- I'm not saying they're right, but some of them to their credit have said you know what, I'm going to hold firm, and if I lose my election so be it. This is why the voters sent me here.

BORGER: And they've taken a pledge not to raise taxes. And as you say, they don't see themselves as career politicians, so good for them. I mean this is what they believe in. However, however, if you believe economists also the country's economic future at stake and so the question is when can you get to a compromise or is that just a dirty word around here.

KING: And Kate Bolduan, forgive me if I have to interrupt you if the speaker walks in. But we're watching essentially the test of the two John Boehner's here. He became speaker because of these new members, and they know clearly what they want, but his history, his history is cutting deals. BOLDUAN: His history is that of a dealmaker and that is definitely an issue, a problem, or maybe the opposing forces that he has to face in his job. He does have a strong number of people in his conference, in his caucus, if you will -- I guess we should -- John, I think we need to talk --

(CROSSTALK)

KING: Let's listen to the speaker.

(CROSSTALK)

KING: Thanks Kate -- speaker of the United States.

REP. JOHN BOEHNER (R-OH), HOUSE SPEAKER: I want to be entirely clear. No one wants to default on the full faith and credit of the United States government. And I'm convinced that we will not. Starting tonight I'll be working with colleagues here in the Capitol, both the House and the Senate, to find a responsible path forward. And I have confidence in the bipartisan leaders of the Congress that can come together and to ensure that we have an agreement that will allow the country to avoid default and meets the principles that we've outlined.

Spending cuts that must be greater than the increase in the debt limit and no tax increases. The discussions we've had with the White House have broken down for two reasons. First, they insisted on raising taxes. We had an agreement on a revenue number. A revenue number that we thought we could reach based on a flatter tax code with lower rates and a broader base. That would produce more economic growth, more employees and more taxpayers.

And a tax system that was more efficient in collecting the taxes that were due the federal government. And let me just say that the White House moved the goalpost. There was an agreement, some additional revenues, until yesterday when the president demanded $400 billion more which was going to be nothing more than a tax increase on the American people. And I can tell you that Leader Cantor and I were very disappointed in this call for higher revenue.

But secondly, they refused to get serious about cutting spending and making the tough choices that are facing our country on entitlement reform. That's the bottom line. I take the same oath of office as the president of the United States. I've got the same responsibilities as the president of the United States. And I think that's for both of us to do what's in the best interests of our country.

And I can tell you that it's not in the best interests of our country to raise taxes during this difficult economy, and it's not in the best interests of our country to ignore the serious spending challenges that we face. I want to say this is a serious debate, and it's a debate about jobs, and it's a debate about our economy, and frankly it's also a big debate about the future of our country. You know, until recently the president was demanding that the Congress increase the debt limit with no strings attached. As a matter of fact, the treasury secretary sent me a letter two days after we were sworn in, in January demanding that we give him a clean increase in the debt limit. I immediately responded and told the treasury secretary that the American people would not tolerate a clean increase in the debt ceiling unless there were serious spending cuts attached and real reforms to the way we spent the American people's money. I went to New York City in May, gave a speech to the New York Economic Club, where I outlined the challenges we were facing and I made it clear that we would not increase the debt limit without cuts that exceeded that increase in the debt limit.

That there would be no new taxes and that there would be serious spending reforms put in place. Listen it's time to get serious and I'm confident that the bipartisan leaders here in the Congress can act. The White House won't get serious. We will.

UNIDENTIFIED REPORTER: Mr. Boehner --

(CROSSTALK)

UNIDENTIFIED REPORTER: Your own aides say that the package of cuts that was on the table were worth about $3 trillion. How can you say that the White House wasn't serious about spending cuts? That's even more than you were asking for initially.

BOEHNER: Listen, we've put plan after plan on the table. You know the House passed its budget. We had our plan out there. The House passed the "Cut, Cap and Balance". Never once did the president ever come to the table with a plan. It was always -- we were always pushing. And, you know, when you get into these negotiations, sometimes it's good to back away from the tree and take a look at the forest.

And yesterday afternoon after the president demanded more revenue in this package, I came back against -- away from the tree to take a look at the forest. I spent most of the morning and afternoon consulting with my fellow leaders, members of our conference, and others about the way to go forward. And I just want to tell you what I said several weeks ago. Dealing with the White House is like dealing with a bowl of Jell-o. I'm not going to get into the partisan sniping that we heard earlier.

But I can tell you that there was every effort in the world to avoid the real cuts that we need to make in order to preserve the fiscal integrity of our country and frankly the real cuts that needed to be made -- that need to be made to preserve our entitlement programs, which are important programs, to tens of millions of Americans.

UNIDENTIFIED REPORTER: Speaker Boehner --

(CROSSTALK)

UNIDENTIFIED REPORTER: Speaker Boehner --

UNIDENTIFIED REPORTER: (INAUDIBLE) frustration with the White House, but how can you concede that you can forge an agreement here just exclusively with people in the House and the Senate without having some buy-in (ph) from the White House?

BOEHNER: I think that we can work together here on Capitol Hill to forge an agreement, and I'm hopeful that the president will work with us on that agreement.

UNIDENTIFIED REPORTER: Speaker Boehner --

UNIDENTIFIED REPORTER: President Obama said that you did not return his phone call. Has this permanently damaged your relationship with the president?

BOEHNER: Listen, the president and I have gotten to know each other pretty well over the course of the last six months, and I can tell you that in all of our conversations, they were respectful, they were firm. There was frustration on both sides. But I don't -- I don't believe that our relationship is permanently damaged.

(CROSSTALK)

UNIDENTIFIED REPORTER: The president has invited you to the White House tomorrow morning. Are you going to go?

BOEHNER: Yes, ma'am.

UNIDENTIFIED REPORTER: Mr. Speaker, do you trust the president? (INAUDIBLE) can't come to any sort of agreement on this. I mean you say he backed away from an offer he made. Do you trust him as a negotiator?

BOEHNER: I do trust him as a negotiator, but you have to understand that every step of this process was difficult. You know, there's a reason why we have two political parties. There's a reason why the president and I come from different political parties. The president believes in the size of government, in more taxes from the American people. Listen, every weekend when I'm not stuck here in Washington, D.C., I'm out somewhere in America and I'm out around my district and I run into people, small business people, who don't understand why they pay the taxes they pay.

Don't understand all the regulations that are coming out of Washington impeding their ability to grow their business and to hire more people. And when you boil all of this all down, yes, we've got to save the fiscal future for our country, but we've got to get our economy going again. And we've got to give people confidence in our economy, and the way to do that is to have real spending cuts now.

(CROSSTALK)

UNIDENTIFIED REPORTER: The differences in revenue it sounds like you and the White House -- amount to about $400 billion over 10 years, that is about $40 billion (INAUDIBLE) considering the context of the (INAUDIBLE) federal budget is not really that much. (INAUDIBLE) the stakes are so high (INAUDIBLE) the talks have broken down over a relatively significant number? BOEHNER: The extra $400 billion would have had to come from increasing taxes on the very people that we expect to invest in our economy and to create jobs.

UNIDENTIFIED REPORTER: The president suggested that you walked away from this because you couldn't control your own caucus. That there are people -- there are Republicans -- we have heard Republicans who say that default isn't something they're concerned about that don't want to see a debt ceiling raised under any circumstances. Is there any truth that you were pressured to walk away from something that you might have otherwise --

BOEHNER: Absolutely not. I gave the president's proposal serious consideration. But let's understand something, there was an agreement -- there was an agreement with the White House at $800 billion in revenue. It's the president who walked away from his agreement and demanded more money at the last minute. That is -- and the only way to get that extra revenue was to raise taxes.

UNIDENTIFIED REPORTER: (INAUDIBLE) this point what is the likelihood of (INAUDIBLE) short-term debt limit increase and is that something that you and the president have ever discussed?

BOEHNER: The president and I have never discussed a short-term increase in the debt limit. I'm not really interested in a short-term increase in the debt limit. I believe that we have two challenges. That we have to increase the debt limit, and we have to deal with our deficit and our debt, and the sooner we do that, the better off our country will be.

(CROSSTALK)

UNIDENTIFIED REPORTER: (INAUDIBLE) three possible options, Cut, Cap, and Balance, (INAUDIBLE) and McConnell /Reid. Cut, Cap, Balance has failed in the Senate. The big deal just collapsed. What else is there to do?

BOEHNER: I'll be working with the bipartisan congressional leaders on a path forward. I'm confident -- I'm confident that Congress can act next week and not jeopardize the full faith and credit of the United States government.

KING: The Speaker of the House, John Boehner, responding to the president of the United States. A very dramatic night here in Washington and a very important night not only for the negotiations over a plan that would reduce the deficit spending and give the government more power to borrow money beginning August 2nd, raising the debt ceiling they call it, but a very important night for you.

Some economists warn if we get default, interest rates would go up. Unemployment would go up. But America's never been here before, so some Republicans are skeptical of those warnings and this is important to note from the speaker's news conference. Yes, he blamed the president. Said the White House moved the goalpost, said the president walked away from the deal he had previously negotiated because he was under pressure -- again this is the speaker's view -- from Democrats who wanted more in tax increases.

But very important to note Speaker Boehner saying he remains committed to getting a deal prior to August 2nd to raise the government's debt ceiling. The question is would such an agreement include any cuts. Will they be able to work it out or will we have another breakdown? Let's go to Capitol Hill and Kate Bolduan.

Kate, the speaker notified reporters earlier he was walking out of these talks. Then he told the president. The president spoke to the American people and to reporters to give his take -- the speaker coming back. The question now is what will he work on? That last question I thought was a pretty good one. The grand bargain seems dead. A smaller deal -- the House -- the House-passed plan died today in the Senate. What's option three?

BOLDUAN: Option three is a very -- is an excellent question, I'll tell you. I will tell you we are receiving some pushback on the timing of the calls, when the president was informed and when reporters were informed. But besides that, John, the big question now that we should all focus on is exactly that, where are they going now. And we're told from sources it's unclear.

They know now that they need to work quickly. They need to be serious and they need to find a compromise. The Republican sources that we spoke to said that they -- there's still an understanding that they need to unveil some plan, some compromise Monday in order to allow time to get it through the House and get it through some of -- possibly some of the procedural obstacles that they could come upon in the Senate.

So it's going to -- they know they need to work hard. They know they need to work fast. Where they're going to be able to thread the needle to find this compromise remains a question this evening.

KING: And our chief White House correspondent Jessica Yellin is still with us. Jess, I want to first listen to some of what the president said, at the end of the president's statement. He essentially was saying I had a great deal on the table. It will be up to the speaker to explain -- again, the president's characterization is the speaker ended the talks. Let's listen to the president.

(BEGIN VIDEO CLIP)

OBAMA: It is hard to understand why Speaker Boehner would walk away from this kind of deal, and frankly, if you look at the commentary out there, there are a lot of Republicans that are puzzled as to why it couldn't get done. In fact, there are a lot of Republican voters out there who are puzzled as to why it couldn't get done. Because the fact of the matter is the vast majority of the American people believe we should have a balanced approach.

(END VIDEO CLIP)

KING: And the question now, Jess, is where do we go? It is clear that Speaker Boehner and it is clear that even before Speaker Boehner, the Republican leader in the Senate Mitch McConnell, they wanted essentially to make the president the last guy in here. They wanted to negotiate this deal in Congress and bring it to him. The president says oh no, no, everyone's coming right back down here to the White House tomorrow. Does the president -- does he have to be in the middle or if they negotiate a plan with him on the sidelines that gets him what he wants, is that OK?

YELLIN: As long as it's not a short-term deal at this point, John, the president and the White House have made it clear that they're going to accept something that raises the debt ceiling through the 2012 election. Look you heard him say that if this doesn't get done, it's a self-inflicted wound. And people -- he's astonished that Congress would take it to the brink this way. Essentially we heard Democrats, you know, yelping yesterday that in their view the president was trying to triangulate. That he was really walking all the way over to give Republican what they wanted and dragging Democrats all the way along, screaming and shouting to just get something down.

So, you know, the rest of Washington and the president sounded amazed that Speaker Boehner wasn't going to accept it. And Democrats have been pushing back hard on this characterization that we've heard from Speaker Boehner that the White House has changed its position, insisting that, you know, that that's just flatly wrong.

KING: It's a fascinating moment and Jess makes an important point, because, politically, Gloria, the president seems to be in the perfect place if you're out there watching in the country. He says a lot of my fellow Democrats are mad at me. Now, the Republicans are walking out of talks with me.

So, politically, he seems like he's trying to be the grownup in the middle.

GLORIA BORGER, CNN CHIEF POLITICAL ANALYST: He is.

KING: However, there's 9.2 percent unemployment in the country right now and if this causes rattling the financial markets and causes anymore hit on an already fragile recovery, voters won't remember this drama a year-plus from when they're picking a new president. But they will make their decision in part based on the course of the economy.

BORGER: Yes. And they're going to look at the unemployment rate, the president is not out there talking about jobs. You know what's interesting to me, though, from John Boehner's press conference is that he actually admitted publicly that he had $800 billion in revenue on the table!

Wow! OK. That's interesting to know, because would he have been able to sell that to his own caucus. And your suspicion and mine, is, of course, that the question of that extra $40 billion was really about as he alluded to the tax cuts on the wealthy expiring, and it's clear that the Democrats wanted some kind of trigger to know that that would occur --

KING: He was willing to accept them if it meant rates for everybody went down so he would say there's no tax rates. Clearly, his argument is there's something in there about rates.

BORGER: Exactly. But interesting to know that John Boehner had gotten as far as $800 billion, even given the concerns of his House Republicans.

KING: Now, we'll find out if there will be anything of the like in whatever they try to negotiate. We do know one thing tonight, for all of the questions, we are getting a fascinating lesson in the complications of divided government.

Jessica Yellin, Kate Bolduan and Gloria Borger, appreciate your help here.

Next, we turn to the day's other major breaking story. The latest on the horrific attacks in Norway and an eyewitness account from an American pilot.

(BEGIN VIDEO CLIP)

UNIDENTIFIED MALE: Immediately after the blast, the kind of debris, it looked just like when the towers were falling on September 11th.

(END VIDEO CLIP)

(COMMERCIAL BREAK)

KING: Now, tonight's breaking international story: terror strikes a major European capital known for its tranquility.

First, a power explosion outside Norway's main government office complex in Oslo, killing at least seven, injuring 90.

Then a man dressed as a police officer opens fire at a summer camp for Norway's Labour Party, sending the panicked teenagers scrambling for cover and killing at least 10 people.

Tonight, Norwegian police say the two attacks are definitely linked. They've arrested a suspect on the island describing him as a 32-year-old Norwegian man. A spokesman tells CNN a man on the island appears to match the description of a person seen near the government building in Oslo shortly before the bomb exploded.

Joining us on the phone from Oslo is Linda Reinholdtsen. She's with Norwegian Broadcasting Corporation, NRK.

Linda, tonight, we have this one suspect in custody. Are there any indications from your reporting about additional suspects or any affiliations?

LINDA REINHOLDTSEN, NRK REPORTER (via telephone): Well, the police are not saying if they suspect if more people are involved, but they think it was the same person who left the bomb and afterwards killed teenagers at Utoya.

The police at least now have the suspect in their custody, and he is talking. So, I suppose we'll know more about it and they're also searching his flat which is located in the -- west of Oslo, which is the more affluent part of the capital.

KING: And describe the sense in the capital tonight and around Norway, a place known for its tranquility, a place known for its openness, and a place that perhaps is suffering a bit from the belief that this could never happen here, therefore, you don't have some of the security measures we see elsewhere.

REINHOLDTSEN: That is true. We don't have the kind of security measures you see in other countries, because, you know, we used to think that this was the safest country in the world. So, our reactions at first was disbelief, you know, how could this happen here. And then it was just fear and horror.

And just as we were trying to cope with the most tragic event since the German occupation, namely the bombing of the governmental quarters, we got the news that teenagers were being slaughtered at Utoya, where this political youth rally was being held.

KING: And has the government said anything about that, the politics, the main bomb goes outside an office building where the prime minister's office is, then the gunman goes on this horrific shooting spree at a summer camp, youth summer camp, but again, a Labour Party summer camp -- has anybody said anything about motivation and the connection to the politics, or is it just viewed as against the government, or specifically something to do with the Labour Party?

REINHOLDTSEN: Well, earlier today, there were speculations that Islamic radical groups could be behind this terror attack, you know, this terrorist attacks. Now, however, it seems something more domestic. Whoever is behind it seems to be politically motivated.

The prime minister has said that he doesn't want to speculate on the motives yet, but we do have one professor of the police academy who suggests that this could be the work of right-extremists. He said that what happened in Oslo today reminds him of the Oklahoma bombing, but as I said, nothing's confirmed yet, and it's too early to tell.

But the police do have the suspect, which we think did the shootings and he's talking, so I suppose we'll know more about it soon.

KING: Linda Reinholdtsen from Norwegian Broadcasting -- we appreciate your help and your reporting tonight. Thank you so much, it's a tragedy for your country. We'll keep on top of this story.

And joining us now, CNN terrorism analyst, Paul Cruickshank and our national security contributor, Fran Townsend, who serves on the external advisory committee for both the CIA and the Department of Homeland Security.

Paul, I want to go to your first. An attack in the heart of Europe, in what is known as a peaceful, tranquil capital. Tonight, do we think this domestic terrorism or do we think there is some Islamic jihadist connection? PAUL CRUICKSHANK, CNN TERRORISM ANALYST: Well, it's unclear, John, at this point where it's domestic terrorism unrelated to Islamist terrorism, or something related to Islamist terrorism and al Qaeda. It's only a very devastating, sophisticated attack which has been pulled off here. Some of the scenes seem a bit like the '98 embassy bombings in Africa against those U.S. embassies but also McVeigh's attack in Oklahoma in 1995.

So, not clear who is responsible at this point, John. There have been threats from al Qaeda against Norway in the past, mainly from Ayman al-Zawahiri, also Islamist radicals are being upset about Norway because of the republication of cartoons of the Prophet Mohammad.

But not clear who it is, it could not be related to al Qaeda at all.

KING: And so, the reflex, Fran Townsend, when you see something devastating like is, could it be al Qaeda. And as Paul just smartly noted, there are a number of reasons. Also troops in Afghanistan, have worked with the United States on some things overseas.

When we see the bomb, we don't know much about it yet, maybe you know more from your sources. But when you see the devastation of this building, this is not a small bomb. This is a pretty powerful bomb that caused damage as high up, as did, and then the police say undetonated explosives were found on the island where this horrific shooting happens with the children at the labor camp.

Just -- when you see that, the sophistication, the power of the bomb, what does it tell you?

FRANCES TOWNSEND, CNN HOMELAND SECURITY CONTRIBUTOR: Well, it suggests, John, that this more than the work of a single individual. If there had be -- remember we saw the Times Square bomber. One guy trying to accumulate the materials and detonate it at the time of his choosing -- it's hard to do. And so, it suggests there's more than just a single individual.

The other thing is there was a Norwegian journalist, media report, suggesting that the guy -- the individual they have in custody, was a farmer who might have had access to the sort of fertilizer that was used to make the Oklahoma City bomb. So, as we learn more facts, we'll understand better the motivation.

But people now, I think, in the terrorism community, are leaning towards -- more towards this being a right-wing extremist and a domestic attack.

KING: And, Paul, in conversations, I spoke to a member of the Labour Party today, I've had a couple conversations with the Norwegian journalists and they al have this sense of why us, couldn't happen here, shouldn't happen here, would never happen here -- in terms of the openness of this society, whether it's domestic terrorism or outside terrorism, is Oslo, is Norway, an easy target?

CRUICKSHANK: Well, I think this really demonstrate that 10 years after 9/11 how vulnerable we are in the West to this sort of terrorist attack and a terrorist attack of some shape and form, it certainly is just a few people, maybe just one individual, but probably more individuals, can create such carnage.

So, I think this is a real reminder and wake-up call that the threat of terrorism, wherever it comes from, is still there as we approach the 10 years after 9/11, John.

KING: And, Fran, help us understand how the investigation will unfold, how they try to answer these questions that you and Paul are raising. Is it a domestic terrorism, inspired by politics, does he have some outside connections, or even if it's a domestic terrorism inspired by politics, did he get outside help in coming about this.

So, you look at the building, I mean, the forensics of the investigation, we're looking at them -- the shattered windows, there was a car apparently overturned, not quite positive yet about the source of the bombing. Obviously, they have explosives they taken off the island undetonated. How does the investigation and the intelligence gathering go forward?

TOWNSEND: On the forensic piece, the first thing they'll do is compare the explosives taking off the island with the residue found at the bombing site, to see if they are the same. That suggests the death -- you know, it will confirm the link between the two.

You will look at his telephone, his cell phones, his bank accounts. You'll look at whether or not he has any Internet trail behind him and his communications. And you'll look to see -- use those to identify those he might have been affiliated with or may have helped him, and you want to do that quickly. They'll try to do that in the first 24 to 36 hours because you want to pick up those people whoever they are and make sure there aren't follow-on attacks planned.

Paul, when you make the point, an excellent point, 10 years later, especially in open Western societies and this is our choice, you can't stop everything. But we make choices no to stop more things just by leaving things open.

Will there be you think in the small European cities now -- will there be other discussions about should we do more?

CRUICKSHANK: There will be those discussions. Those discussions are already happening. You know, tighter security in places like Norway, a country whose population didn't really expect this sort of attack.

But security sources in Norway have been aware for some time, they don't live in a bubble, there is sort of an al Qaeda threat out there, an Islamist threat out there, and all on other threats as well. So, there's just the reality of modern life that there's the vulnerability to terrorism that a few individuals can create carnage.

We saw that on 9/11. We saw it in the last big terrorist attack in Europe on July 7th, 2005, in London and we're seeing that here again in Norway today, John. KING: And, Fran, I don't want to cause any unnecessary alarm, and perhaps this is a domestic incident in Norway. But when something like this happens overseas and there's a question, what happens here in the United States?

TOWNSEND: Oh, the first thing the both our intelligence and law enforcement agencies do is look inside in their own files to see if there's anything they have in light of the attacks makes more sense and might help Norwegian officials understand what happened there. They'll also look to see if they have access to individuals, particularly the FBI, that might have been either involve, supporting or -- of assistance to the Norwegians.

KING: Fran Townsend, Paul Cruickshank, appreciate your insights.

When we come back, we'll stay on this story. Eyewitness accounts and a Labour Party member who was texting, texting, with some of those children hiding in caves.

(COMMERCIAL BREAK)

KING: Tonight, a 32-year-old Norwegian man is in custody after a pair of terror attacks in Norway. Police say the attacks definitely are linked.

At least seven people were killed by an explosion in downtown Oslo, at least 10 shot to death on an island summer camp. The suspect is in custody. He is that suspected gunman and police say he matches the description of a person also seen in Oslo just before the explosion.

Prime Minister Jens Stoltenberg addressed the nation a short time ago.

(BEGIN VIDEO CLIP)

JENS STOLTENBERG, NORWEGIAN PRIME MINISTER (through translator): This attack was bloody and cowardly. We do not know who attacked us. A lot remains uncertain. But we know many are injured and dead.

The next few days will demand a lot from us. We're ready to meet this challenge.

I have a message to those who attacked us, a message from the whole of Norway, you won't destroy us. You won't destroy our democracy.

We're a small, but proud nation. No one can bomb us to silence. No one can scare us from being Norway.

This evening and tonight, we'll take care of each other. That's what we do best when we're attacked.

(END VIDEO CLIP)

KING: Let's get an eyewitness account now from Ian Dutton. He's in Oslo. He's a U.S. airline pilot and he is staying in a hotel a quarter mile from where this bomb went off.

Mr. Dutton, just start with the moment you heard the explosion. If I have this right, you were sleeping?

IAN DUTTON, AMERICAN PILOT: Yes. You know, we flew overnight from New York City to Oslo. And as you might imagine, the first thing you want to do after flying all night is have a little bit of a rest. So I slept for a couple hours.

I was just waking up. It was just a minute or two before I planned on getting out of bed. And the entire building, the hotel, there's a tower in downtown Oslo, it just shook to concussion and absolutely blew me away.

And it seemed as if my bed had been struck by lightning. It was that immediate and that impactful. And so, with that concussion, obviously, it was clear that something was going on. So, I rushed to the window and looked outside. There was a giant cloud of smoke and debris just emerging from the plaza, site where the bombing had taken place.

KING: About how far away? Is it literally a quarter mile? If you're feeling a concussion blow, a movement blow -- am I right about that shaking in your room that far away from the bomb site?

DUTTON: Oh, yes. But I don't even -- I mean, you know, I'm fairly close with a pretty direct line of sight. I have a friend who lives 10 or 15 kilometers out of town. And she was jarred by the explosion. So, it was -- it was felt all over the Oslo metropolitan area.

So -- and then initially as I said, that debris cloud started to spread. And people reacted not so much with panic or shock as disbelief. You know, people just kind of seem like they were looking around as if this couldn't be happening. It can't be something as serious with my mind as telling me it is.

And then -- so just over the couple of minutes, you started to hear the emergency response and see streams of emergency vehicles coming in. And I got to say, Oslo being such a traditionally safe place, I'm actually surprised that they were able to put together that size response so quickly.

Living in New York, you're accustomed to seeing police officers and fire trucks on a very regular basis. But here, you don't ever see them. You can walk around all day in downtown Oslo and not see a police officer.

But streams of ambulances came in. The streets around were very quickly transformed into just constant flows of these yellow ambulances. And they were even backed up in some cases by city buses that I believe that they were using to transport people that have been affected to the hospital.

So -- and now in the aftermath, it's done 180-degree change where normally Oslo is a vibrant place on a summer Friday night. The streets are very quiet. And actually reminds me very much of my own home living in Soho in lower Manhattan, right after September 11th, where the streets are quiet and people are walking around fairly aimlessly. There are not that many people on the streets and there is no traffic since it's all being diverted.

So, it feels like there is that same process of shock and looking for support. Things are very much under control now. There's no more smoke rising. There's no -- only rare sirens.

Although just in the last few minutes a couple helicopters started circling the area, which we hadn't had before.

KING: I assume pretty significant police presence still?

DUTTON: It's -- they've got a cordoned region area there. But it's not -- it's nothing like I would expect to see even for a parade in New York. At least it's not that level of visibility.

A lot of the intersections just have tape and maybe a single officer or a car. But it's -- it really -- Norway just has this strange sense about it that it's a very civilized place and you don't even need that sort of response. You put up tape and people honor it. And I think maybe that's part of it.

KING: Let's go back. Let's go back to the moments where you first looked out the window and you see debris cloud. As the cloud cleared a bit --

DUTTON: OK.

KING: -- what did you see terms of the level of destruction? Were there flames? Were there just charred vehicles? Things overturned?

DUTTON: Well, from vantage point, I can't actually see the exact impact point. There is a small building between me and the center of the plaza there. I can see very clearly though the buildings that we've been talking about that are bordering it that are heavily damaged.

The oil ministry building that's closer to me has a heliport on top and there's obviously heavy structural damage all the way through the building. I'm looking at the backside from the blast. I can see warping on the top floor of the building and the windows are all blown out from the top of it.

So it must have been extremely powerful to have warped the backside of the building from the blast and have that kind of affect.

KING: And -- but from your vantage point, you can't see there's still questions tonight as to what type of bomb this was? Some people say car bomb. Some people say they're not so sure.

You don't have a bird's eye view of that?

DUTTON: Yes, I don't. I don't. Like I say, I can't see the ground level in the plaza. Immediately after the blast the kind of debris, it looked like when the towers were falling on September 11th. It was kind of like dust cloud, probably something you wouldn't want to breathe, containing a lot of crushed concrete or other kind of airborne particles that, like I say, makes breathing difficult and probably has long-term impact if it lodges in your lungs.

So that same kind of thing where, you know, people kind of emerging out of that, obviously not clear what was going on, but just trying to get away from the event.

KING: It is a very peaceful place, a place that is proud of its tranquility. If and this is -- forgive the question -- if you're a terrorist looking to make a statement, why here?

DUTTON: I think it really does send a real -- a real message, I guess, at innocence. In some ways in the U.S. with our September 11th, we were able to say -- a lot of people were able to say that's New York. New York gets that kind of attention. It would never happen here in my town, in my -- and I think Norway felt like that in the world.

It's a peaceful, fairly crime free place with very high standards of living. And this just wouldn't happen here. Something happens on the news and elsewhere in the world.

So I think that it's even more shocking because it's a blow to innocence.

KING: Ian Dutton, I appreciate your insights tonight and all your help. Thanks so much.

DUTTON: OK. Have a good night.

KING: Mr. Dutton was speaking to us from Oslo, describing the scene here in the center of the city where the bomb went off. This is where that bomb went off -- the first explosion in this attack.

Now the summer camp, 20 miles away over here on the island of Utoya -- that is where the gunman came on to an island full of teenagers.

Joining us on the telephone now is a Labour Party member in Norway, Bjorn Jarle Roberg-Larsen.

Mr.Roberg-Larsen, I understand you've been in touch with this camp where this horrific shooting took place. Tell us what you know.

BJORN JARLE ROBERG-LARSEN, LABOUR PARTY MEMBER: When the situation was going on, I was in contact to with my son on social media because they were hiding in caves and bushes and shelters, and trying to make as little noise as possible, because they were scared for their lives because of the shooter. So, I was actually texting with the people that were trying to hide from gunman.

KING: Hiding in caves. Hiding anywhere they could.

ROBERG-LARSEN: Yes. It's a small island. There are some caves there. There are a good parts of the island.

There are some people took shelter. And they were climbing trees. They were finding anyplace possible they could avoid this gunman.

KING: And some of them so frightened they were rushing into the water thinking that might be safer?

ROBERG-LARSEN: That is correct. That is correct. And to be on the steps quite desperate, because the water in Norway is pretty cold now. And it's quite a bit extreme. It's between, my guess, is one kilometer, almost three quarters of a mile. And that's what distances they have to be quite desperate to jump in the water and swim from the island to escape that person that they were swimming for their lives, actually.

KING: From your texting and what you've been able to piece together, were many of those at the camp, were they in a group setting? Were they in different places? And this gunman just walked in and started shooting indiscriminately?

ROBERG-LARSEN: I'm not sure about that, because the camp is not where the boat is. The gunman was starting to shoot just a few minutes after he had entered the island. So I think that he did not start in the actual camp. But he was starting nearby and the nearby boat.

KING: And from everything you've been able to piece together, it was a lone gunman? He was acting alone?

ROBERG-LARSEN: Yes, everything points that he was working alone. But, police in Norway is connecting the situation on the island with the situation in Oslo where bomb went off and so many people are killed down there. Buildings of the government is totally wrecked.

So, it could be that he was working alone on the island but had other people working with him in Oslo.

KING: Do you know how many people were at the camp at the time?

ROBERG-LARSEN: About 600 people were on the island. And they're in the age from 13, 14 years and up to the mid-20s.

KING: Well, sir, we should let you know your country is in our thoughts and prayers, obviously, the young people on that island, most especially.

Bjorn Jarle Roberg-Larsen, a member of the Labour Party in Norway, we appreciate your time, sir, on this difficult day.

ROBERG-LARSEN: Thank you.

KING: Thank you.

Stay with CNN throughout the weekend. Breaking news coverage over that story in Norway and the budget showdown here in Washington. We'll stay on top of all the stories including, continuing right now on "IN THE ARENA."