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Interview with Senator Thune; Latest on Fiscal Cliff Talks; Interview with Senator Corker

Aired December 30, 2012 - 16:00   ET


MARTIN SAVIDGE, CNN CORRESPONDENT: Hello, thanks for joining us, I'm Martin Savidge at the CNN Headquarters in Atlanta. I'm in for Fredricka Whitfield. Good to be with you.

Fiscal cliff talks, they are at a virtual standstill, just 32 hours before we reach the edge of that precipice. Senate negotiators have taken the time out to speak after butting heads on two key issue, one involving tax rates, the other Social Security.

Ali Velshi is in New York, Dana Bash is live on Capitol Hill.

And we're going to start with you, Dana. Exactly just what has gotten lawmakers now not seeing eye to eye?

DANA BASH, SR. U.S. CONGRESSIONAL CORRESPONDENT: Well, actually, let me answer that by asking one of the members of the Senate Republican leadership, Senator John Thune, who just came out of the Senate Republican meeting.

Senator, can you just tell us where do things stand as far as Republicans feel?

SEN. JOHN THUNE (R): Well, look, Republicans advanced a proposal last night. You heard Senator McConnell talk about that on the floor. We are still awaiting a counteroffer by the Democrats. And there was an indication that we would have received that by 10 o'clock this morning. We have yet to receive it. But there are discussions that continue.

Senator McConnell and Vice President Biden are continuing to discuss this and we think there perhaps still could be a path forward.

The one thing that is a, you know, Democrats have come out and made a big deal out of chained CPI; Republicans are very concerned that if that not be used as an offset to reduce or to replace some of the spending cuts that would occur in the sequester, that Democrats put forward an alternative.

And so this is a process. Obviously, there's a lot of give and take going on right now, but Republicans don't want to see new revenues, in other words, Democrat tax increases, be used for new spending. So that's sort of where many of our members have drawn the line right now.

BASH: And that is where it seems to be one of the big roadblocks are right now. You all want to use what's known as chained CPI, which is a technical -- I won't get into it now but it would effectively really affect Social Security recipients to replace the sequester, which is $100 billion in cuts. And Democrats want to use new revenue from tax increases to replace the sequester.

Is that where you see it?

THUNE: Well, I think that's a -- that -- yes, I mean, there are other issues involved but that's certainly one example of something I think where -- and frankly, I mean, chained CPI to us is not just about replacing the sequester today. It is putting in place a policy that will help save and protect Social Security in the long term.

But that being said, if Democrats don't accept that as an offset, then come up with something else, because raising taxes to pay for new spending is not something that Republicans believe this debate ought to be about.

It ought to be about reducing the deficit and the debt. And what they are essentially suggesting is we want new taxes, we want higher taxes on people in this country to pay for new spending.

BASH: And Senator, Senator McConnell has spoken a couple times with the vice president. We have seen in the past that the two of them have been able to come up with bipartisan deals to get through Congress on taxes and other things.

Did he give you an indication in the meeting you just had with rank and file Republicans that that might be an avenue of success?

THUNE: There -- those conversations and discussions continue. And we remain hopeful that that will get a breakthrough. Obviously, what had happened here between the two leaders in the Senate had broken down, because the Senate Democrats failed to come forward with a counteroffer to the proposal the Republicans made last night.

So hopefully, the discussion between the vice president and Senator McConnell will get us back on track, hopefully get a breakthrough and something that we ultimately can vote on, hopefully yet today or tomorrow that would avert what we all believe would be an economic disaster.

BASH: And one last question, the Senate Democratic leader, Harry Reid, has said that if you all can't come up with something by tonight, that he will put a scaled-down version of what the president has asked for with regard to tax cuts on the Senate floor.

And, of course, that is raising taxes on everybody making above $250,000 a year.

Do you think, knowing your Republican colleagues, that enough Republicans will cross over to the Democratic side and allow that to pass, if it's -- even if it's 60 votes needed?

THUNE: You know, it's hard to say until we know exactly what might be in it. But this -- this is what I would say about that. If that's where we end up and if he decides to move a bill onto the floor and maybe he could pick up the House passed extension of all the rates, HR-8, and put it on the floor as a vehicle for that, he ought to open it up to the amendment process.

I mean, give us an opportunity to debate some of these things that we think ought to be a part of that. What he will more than likely do, if history is any guide in this, is take a bill and fill the amendment tree and prevent Republicans from having an opportunity to offer amendments.

I think we would welcome the opportunity to have an open debate on the floor of the United States Senate that the American people could observe and be part of.

BASH: Thank you so much, Senator.


BASH: Appreciate that. Thank you. Thank you.

And there you have it, Martin, from a member of the Senate Republican leadership, just literally walking out of a meeting with all Senate Republicans getting a briefing from the Senate Republican leader, Mitch McConnell.

And to me, I thought what was most interesting there was the fact that it seems to be that this opening of dialogue between Mitch McConnell and the vice president, who have a good relationship, very good working relationship, trust each other, have done deals before, the fact that he sees hope there is interesting.

You know, there's not a lot of hope right now going on here, but the fact that he said that is noteworthy.

I should also tell that you we told you earlier that we expect Harry Reid to come out to the microphones. I was just told that that is not going to happen. We should not expect him to come and talk us to after his meeting, which is going on behind those doors right now with Democrats.


SAVIDGE: All right. Dana Bash, thank you very much. Great to have that insight from the Republican side of things. We will hear from the Democrats later.

Let's bring in Ali Velshi, because we want the financial perspective on all of this. It won't be long before the markets are open and reacting, and I guess that's maybe where I'll begin, Ali, is what do you think the reaction of Wall Street is going to be? I know it's only a half day of trading, but still, it could be significant.

VELSHI: Yes. Exactly. It's going to be a full day of trading tomorrow, but it's the last day of trading of the year. So the problem is, a lot of people just don't want to be involved in a market where they don't know which way things are going, which is why you saw, Martin, you saw on Friday, some selling on the market.

A lot of people just didn't -- they'd rather be in sort of cash or something a little more nimble, not knowing what's going to happen.

You know, just listening to that conversation with Dana and John Thune, it is fascinating to me because the sophistication of the discussion that they are having about these financial matters is very interesting.

You may really hate the concept of chained CPI, Martin. Some people do; I've been getting a lot of tweets about it today. That's the idea that, you know, CPI, inflation is how they increase and decrease benefits, like Social Security, in the United States. And what you're --


SAVIDGE: You're talking about the consumer price index? I think that's --

VELSHI: The consumer price index, right. Correct. And what the Republicans have suggested is that instead of saying, well, this basket of goods that the CPI or inflation is based on, when they go up, you increase the checks by that amount, they say do what normal people would do.

So when the price of beef goes up, people may change to chicken. That's one example that's been used. So, in fact, change the basket a little bit. The net effect would be probably smaller increases to Social Security over time, that's why it would be a saving to the government.

And whether you like that or not, it is actually not a terrible idea, even though I'm going to get another bunch of tweets from people who say that it is. It's not terrible; it may not be ideal.

Why are we having this conversation with a day and a half to go? Five hundred and some-odd days ago they came up this concept of a sequester. They knew the fiscal cliff was coming. Twelve years' notice we've had that these Bush tax cuts are going to expire.

So these kind of discussions require air. They require time. They require debate and we are now having them.

So when John Thune says he hopes that Senator Reid brings a bill to the floor and it is open to discussion and amendment, not today. Not today. It's too late for that. Make a deal and stop markets from going over the edge, stop this economy from going over the edge. They will ruin a good economy, Martin. This is ridiculous, irresponsible, disgusting behavior.

SAVIDGE: So you don't want to hear this kind of detailed conversation going on now?

VELSHI: No. No. Not at all. Forget it.

SAVIDGE: You want to get a deal done?

VELSHI: Forget it, no more details. No more details. You had 550 days to come up with details. Today is not the day. Today's only job is to come up with a deal that averts going over the fiscal cliff and anything other than that is absolute irresponsibility. That's congressional malpractice.

SAVIDGE: Any deal? In other words, say some sort of temporary fix or does it have to be that long-term overhaul?

VELSHI: No. OK, I don't think -- at this point, we -- beggars can't be choosers. I don't think we are going to get a grand bargain. I don't think we are going to get a big deal with long-term stuff and that -- look, a lot of people object to that. They will call that kicking the can down the road, and you know what, Martin, they are absolutely right.

Once again, we will kick the can down the road, but that's what happens, when you back yourself into a corner. We did this with the debt ceiling, we did this with the government shutdown, it's the way we do business now, we should get used to it, that's how things are done.

It's the 11th hour; we need an 11th hour deal -- 11th hour deals are never particularly good. Everybody is going to give something up. And I just hope they all prepare to give something up and get a deal. It is not going to be pretty. I will be here the whole time, Martin; I will be here Monday morning to see what markets do (inaudible) if they don't have a deal.

SAVIDGE: Real quick before you go, let me ask you this.

The average American -- for most of us, this is just a political exercise -- where are we going to feel it first, if, in fact, we do go over that fiscal cliff?

VELSHI: Well, the first place you will feel it yourself is in your first paycheck that gets -- and it is unclear how the first paycheck is going to feel, so it's probably the end of January, but really, sentiment and confidence are more important.

The market may respond in a particular way; there may be companies who know if that sequester hits that they are not going to have government contracts so they will issue layoffs. We will get the rules from holiday shopping which are going to be weaker than we expected them to be, so you'll see bigger layoffs in January.

You always see layoffs in January anyway. You're going to see more of them than normal, so you're going to feel it in the atmosphere before you feel it in your paycheck.

We are in a good place, this economy has been ticking along, there is some economic growth, we've had job creation for more than 30 months, it is actually not that bad out there, it is going to start to feel worse if we don't get a deal.

SAVIDGE: All right, Ali Velshi, the last thing we need is to feel worse for the economy. Thank you very much.

VELSHI: All right, Martin.

SAVIDGE: Taxes may go up, as you heard, and government spending slashed, if the lawmakers cannot strike some kind of fiscal cliff deal. But a former Assistant Secretary of Defense says he can help with a way to cut almost $100 billion from the Defense budget. He will be here to explain.



MISSY LEFLAR, IREPORTER: This whole fiscal cliff mess shows how incredibly out of touch you are with the way people really live in this country. You are off in la-la land and everyone is saying how you're acting like a bunch of spoiled brats who are more interested in being right than in doing the right thing and actually representing the people who elected you.

UNIDENTIFIED MALE: My New Year's message to Washington is this, there are not enough wealthy people or corporations to keep you in office. In that light, please simply grow up, govern, but most importantly, support middle class policies.


SAVIDGE: Americans, as you can see, are clearly very frustrated with lawmakers. At this moment, there is no deal yet to be reported when it comes to trying to keep your taxes from going up. Government spending for things like education, research and investments in infrastructure will also take a big hit.

But my next guest says that our Defense Department is in a much better position to endure a hit like that. Lawrence Korb joins me now from Washington. Dr. Korb is the senior fellow at the Center for American Progress and former Assistant Secretary of Defense.

Dr. Korb, thank you very much for joining us.


SAVIDGE: You say that the Defense Department can afford budget cuts, but many are going to worry that this is going to somehow undermine our national security. What do you say?

KORB: Well, I have to say that compared to where we were, and we are talking about the base budget, the war budget is funded separately, compared to where we were on 9/11, and where we are now, the defense budget has almost doubled so we can easily absorb the cuts and the cuts we propose, $100 billion over the next decade will bring you back to where you were in real terms in 2010, which is higher than what we spent on average in the Cold War and even higher than at the peak of the Reagan buildup, an administration I was privileged to serve in. SAVIDGE: OK. So I believe in the article that I read, you laid out four points, on how to cut, as you say, $100 billion from the Defense budget. What do you cut? How do you get there? How do you reach that number?

KORB: Well, basically what you do, you start with nuclear weapons. We now have 1,700. You can bring it back down to close to 1,000. This would be over the next 10 years. The air war colleges, we don't need more than 311. General Cartwright, who was the vice chairman of the Joint Chiefs of Staff says 800, bring it back to 1,000.

You can look at the new fighter planes. The Navy shouldn't buy the F- 35, the Joint Strike Fighter; they really don't want them, they are very expensive. For half the price, they can buy Super Hornets, the F/A-18E/Fs, so they can buy those.

You can bring your ground forces back to where they were before we went into Iraq and Afghanistan. We are not going -- Secretary Gates says anybody who recommends sending large numbers of land forces into Muslim country ought to have, you know, his head examined. And then finally, you can take a look at the health care benefits for military retirees.

About a decade ago, we said, you know, if you go in, you go into Medicare, we will pay for everything else. There's no co-pays, there's no you know, splitting of the cost. And what happens is they overuse it and the health care costs, again, to quote Secretary Gates and the Department of Defense, are eating us alive. And these are for retired people, not for people still on active duty.

SAVIDGE: All right. And I want to -- you know what, Dr. Korb, I'm going to have you hang on right there because we just have some other breaking news coming. So stay with us, because there is more I want to ask.

But Dana Bash is now back with us now on Capitol Hill with more.

Dana, what do you have?

BASH: That's right. I have another Republican senator who came out of that meeting with Mitch McConnell, and he's a fellow Republican, Senator Bob Corker of Tennessee.

Thank you very much. Can you just give us a sense of the feeling that you got in that behind closed doors meeting that just ended from your leader?

SEN. BOB CORKER (R), TENN. Sure. Well, he did receive a call -- he had a call with Vice President Biden and so there are conversations.

BASH: I'm sorry; he received a call while the meeting was happening, didn't he?

CORKER: That is correct. And I think he felt like that, you know, the call was productive. So I think progress is being made. And chained CPI, I just want to make everyone, it is not part of the equation as far this year-end discussion goes. So that's not -- I know that Senator Reid said some things on the floor but all of us understand that things like entitlement reform are going to be dealt with unfortunately during the debt ceiling debate.

I think what shocked everybody in our caucus, truly, it was just -- is that the president has campaigned this entire year on raising taxes on the wealthy, which we all understand is going to happen. I mean it is going to happen either today or tomorrow or in the next couple of weeks.

But their proposal to us right now is they are spending 100 percent of that money. Let me say that one more time. The president campaigned this entire year on taxing the wealthy to reduce deficits in our country. And what they are proposing to us right now is that they spend 100 percent of that money.

BASH: So just to be clear for our viewers, what the president and what the Democrats have proposed in this back and forth negotiation is to take the money raised from tax increases and instead putting it to -- instead of putting it towards deficit reduction, cancel out the so- called sequester, which are spending cuts.

CORKER: Yes. That's correct. The sequester was put in place during the last debt ceiling debate. It was 60 percent of the $2.1 trillion that we had in deficit reduction. And what the Democrats are proposing is instead of that sequester happening -- I mean this is money in the bank for people who care about the solvency of our nation -- they want to spend revenues on doing away with sequester.

Now, there are better ways of doing cost reductions and sequester but they need to be dealt with other cost reductions.

But it's just beyond belief to me that the president would have made such a big point out of taxing the wealthy, which we all know is going to occur, but to use every bit of that right now and spend it so that that money is gone and we are continuing with these huge deficits that our nation faces.

BASH: And, Senator, I just want to go back to something else you said a couple of minutes ago because that seems to be news and we are hearing it from some of your Republican colleagues as well.

A big part of what we were told is the deadlock right now is that Democrats were just totally taken aback by the fact that Republicans offered in this package what we called chained CPI, which for people out there just should know in real terms, would affect Social Security recipients and Democrats said no.

So, what you're saying is that what was decided in this meeting among rank and file Republicans, is that you are just going to take that off the table?

CORKER: Well, it's actually decided way before and I don't think that Leader McConnell, even though the president has support chained CPI, he did so this morning on "Meet The Press," I don't think they expected them to ever take it up, so it wasn't something that was -- that was serious.

What I think would be helpful, you know, the president has talked this morning again on David Gregory about the $1 trillion in cost reductions that he offered Speaker Boehner over the last couple of weeks. None of y'all have ever asked him to my knowledge, for a list of specifics but maybe if he would give us those specifics now, we could use those as part of these negotiations.

I've never seen those. I don't think they really exist. As a matter of fact, I'm pretty sure they don't exist.

But so we are in a situation though -- you know, this is all high drama, I realize. I think that Leader McConnell is having a pretty fruitful conversation with Vice President Biden and hopefully over the course of the next short period of time, will come up with a resolution that's different than taxing the wealthy to spend all the money right now.

If we can do that maybe something good will come out of this.

And by the way, if that doesn't happen, another way of doing this would just bring a bill up on the floor and let's begin debating it. I mean, that is what we are hired to do and be a much better process than these behind closed --

BASH: With respect, and I know you agree with me, you guys are hired to do a lot of things that haven't been done around here. So -- and I know you agree.

CORKER: No, I agree with that. I will say I have offered a bill to deal with this and did it early on. So --

BASH: I know. it's good to get that for the record. Thank you, Senator, appreciate it.

And, Martin, back to you. That was noteworthy, again, I think for a couple of reasons. One is he confirmed what several other Republican senators are saying, is that what we have been talking about for the past, I don't know, three or four hours, that Democrats say caused the current impasse, chained CPI, Republicans are saying, fine, we are taking it off the table, which as we talked about, might have been a major reason tactically why Democrats made it public and told us about it, so that they could kind of snuff the Republicans out on that.

But the other thing is that talks at this hour seem to really be shifting from -- between the Republican leader and the Democratic leader to the Republican leader Mitch McConnell and the vice president who have gotten things done before. The fact he got a call even while Republicans were meeting certainly is telling, it's probably the third time at least they talk today.

SAVIDGE: Right, Dana. It does sound like they are sort of reaching out to their own constituents to sort of say when we reach this deal, this is what we have gotten out of it. So we'll see how it plays out, thanks very much, Dana Bash.

BASH: Thank you.

SAVIDGE: In the meantime, we will be back and talk to Larry Korb once more, Dr. Larry Korb, in just a moment about those defense cuts.



SAVIDGE: And I'm back again with Dr. Larry Korb.

Thank you very much, by the way, for staying with us through all of that.

KORB: My pleasure.

SAVIDGE: He's a senior fellow at the Center for American Progress and a former Assistant Secretary of Defense. We were talking about $100 billion worth of cuts and you outlined essentially what are cuts to what I would say were big-ticket items.

Two quick things on that, number one, those programs, one was a nuclear program, the other was talking about the sophisticated jet fighter, those are jobs. I mean, those are important to people in the sense that, yes, they are dramatic cuts that you can make and they're programs perhaps the Defense Department can get by without, but they are a lot of jobs.

Does that come into the consideration here?

KORB: Well, if you take a look at the nuclear that is no jobs at all. These are weapons that you have that we are maintaining. it's not a question of building new ones. And with the F-35, you would -- obviously, people working for Lockheed in the long term would be affected but they're still selling them to the Air Force.

But people working for Boeing would have more jobs. So it's really not going to have any impact on jobs. And the key thing is when you're talking about government spending, the least efficient way to create jobs is defense spending. Any other -- education, health, even tax cuts create more jobs than spending on Defense.

SAVIDGE: What about number of people in uniform, do you cut that back and if so, how much?

KORB: Well, again, what we are talking -- they have already begun to cut it back from the 2005-2006 level but they're not bringing it back to where you were on -- prior to our invasion of Iraq and Afghanistan. We are saying take it back there. That's another 17,000. That's not that great a cut.

SAVIDGE: And as far as boots on the ground, I mean, for future conflicts, I think we see them more as low-level conflicts but Special Forces, the things like that, do you think that this reduced footprint of the number of troops would fit into this kind of ideology? KORB: Well, yes, it is, because we switch from counterinsurgency and nation building to counterterrorism and basically you do you use Special Forces.

We have advocated a Special Forces budget go up, but that is comparatively small, it's only about $11 billion. Rely more on unmanned planes than manned planes, the so-called drones. Yes, you can actually be more effective. And this is the direction that the country is moving.

SAVIDGE: Do you think that the -- say the generals agree with you?

KORB: Well, I think the generals, obviously, they are never satisfied no matter how much you spend on Defense. I mean, because, obviously -- in fact, you could spend the whole federal budget and you couldn't guarantee against every risk.

But you know, the good thing about cutting defense is you will make them manage better. You know, what's happened in the last decade, we've had unprecedented cost overruns in our major weapons systems, something like $300 billion to $400 billion. We spent $50 billion in the last decade on weapons that we canceled. So I think this will make them manage a little better.

SAVIDGE: Before I let you go I just want to ask you about Chuck Hagel, he's being talked about as the next Secretary of Defense. You work with him and I'm wondering what do you think about him as being in that job?

KORB: Oh, I have never seen a person more qualified than Chuck. I mean, I have known every secretary going back to McNamara. He has not only been elected to the Senate, he has had executive appointments; people forget he was the number two at the Veterans Administration in the Reagan years when I was there.

The other is he has shown battlefield courage. You know, he has won the Purple Heart. He has also shown bureaucratic courage because he resigned from the Veterans Administration as a comparatively young man when the head of the Veterans Administration was saying Agent Orange is sort of like acting. I mean, what an insult to the people who served. So he stepped aside.

He is the head of the president's Foreign Intelligence Advisory Board and more important, Defense -- running Defense is a big management job. He has been very successful in the private sector.

SAVIDGE: Yes. It is indeed. All right. Dr. Larry Korb, worth the wait, thank you for hanging with us.

KORB: Thank you for having me.

SAVIDGE: Up next, more on the fiscal cliff, lawmakers have hit a major snag in the negotiations and we are just two days before the deadline.


SAVIDGE: We are following breaking developments on a story that affects about every single American, the fiscal cliff. And we reach that cliff, the brink, in just two days.

About two hours ago, negotiators apparently hit two major snags, one over Social Security, which now appears to be resolved, and the other over tax hikes, specifically who should get them.

So let's bring in CNN contributor and senior political columnist for "Newsweek" and the "Daily Beast," John Avlon, to get his opinion on what is happening in Washington.

And John, just first of all, how significant is it that we are a half a day or day and a half, I guess, away from this cliff and there's no agreement?

JOHN AVLON, "NEWSWEEK": It's hugely significant. I mean, the countdown is on. The clock is ticking, literally, to the fiscal cliff. And as others have noted today, we have known about this cliff for 500 days.

This is the world's most anticipatable political and economic problem. Congress set this time bomb, now they are scrambling to defuse it before it goes off and threatens to take our economic recovery as a country and kick us back into recession.

So the fact that this is happening in last-minute negotiations and it's great news as Dana Bash reported that Joe Biden and Mitch McConnell seem to be backchanneling and they've got a constructive relationship in the past, that's great. But this is all being done piecemeal and that fact shouldn't give anybody a great deal of confidence. It's pathetic that we are here at this hour facing the fiscal cliff.

SAVIDGE: And that's the point I wanted to raise with you. I mean, you obviously have followed Congress. You know how all this inside trading works, so to speak.

Does it feel like the wheels are coming off, that we are now off the script, that this is totally in territory we had not anticipated we would be at?

AVLON: Absolutely. And let's help folks appreciate how we got here. You know, this isn't just about philosophical or ideological divisions, this is a crisis of self-government right now. We've had divided government before but we've never had divided government quite this dysfunctional.

And it is because of polarization, it's about the reduction of swing districts, it's about the impact of partisan media creating this us against them mentality. We were told all during 2012, Martin, the election was too contentious a time to get anything done for the American people, we would wait until the lame duck session of Congress, we would wait until after the election. And then legislators would be liberated and free to be able to work across the aisle and solve these serious problems.

Well, the lame duck session has been here for weeks now and nothing has gotten done. We are 36 hours away from the end of the year and they are still scrambling on Capitol Hill to come to some kind of an agreement, forget a grand bargain to deal with our deficit and debt.

That's not even on the table. We are just looking at a patch to go live to fight another day and not have all Americans' taxes raised automatically in 36 hours, to say nothing of unemployment insurance evaporating.

SAVIDGE: And I'm sorry to interrupt. But in almost all of these conversations that we've had with members of Congress, they seem to end it with this, well, it looks like we may have something. I mean, there is always that optimistic ending.

And what I'm wondering is that is it really that we are all fooling ourselves? That we somehow believe, well, they have worked this out in the past; it has never happened before; we will get this done.

Maybe this is that time we won't. I mean, do you actually start to think that we could be headed right over that cliff?

AVLON: Absolutely. I mean, look, we're -- this is a triumph of hope over experience here. Every time we've had a commission from the super FAIL committee on, that has tried to find a way to reason together so the sequestration cuts wouldn't occur, they have failed.

What we'd end up doing is sort of suing for peace, trying to come up to kick the can to another day. And even if we come up with this patch, Martin, as you heard Senator Bob Corker say, the really tough questions of entitlement reform and tax reform, those are going to end up kicking in in February when the debt ceiling occurs.

So we need to face the fact that we could very well go over the cliff but this is becoming a predictable problem that has roots in something profound.

Our basic capacity to self-govern is starting to be diminished by the polarization in Congress and it should frustrate Americans. We've had some great iReports, people saying, look, these folks don't appreciate on Capitol Hill how this looks to the rest of the country. Where people deal with people of different opinions every day, and they still find a way to work together and solve problems.

How come that attitude is totally absent in Washington?

SAVIDGE: Yes, and I always think that one of the great -- certainly the greatest things of Americans is the ability to compromise. And so you seem to be implying here that all of democracy is threatened by this.

AVLON: This is a crisis of self-government. We have had divided government that's worked beautifully before. We got the Marshall Plans done, the highway system, civil rights bills in the 1960s, LBJ as president, Everett Dirksen in the Senate.

We have done this before, all the accomplishments of the Reagan era. This level of dysfunction is something new, it is a result of the polarization, of the parties being more polarized to their extremes than ever before, the increased power of the professional partisan activist class, who are actively arguing on either side to not make a deal, saying that a bad deal is worse than no deal, go over the cliff.

These voices have real influence right now and they are causing economic calamity to our country. They are making us look foolish. They are making us look unable to self-govern in a constructive way, let alone serve -- solve long-term problems, which is what we elect them for. People should be furious that we are here 36 hours with no deal on the fiscal cliff.

SAVIDGE: And I have no doubt they are. John Avlon, thanks very much, as always, for the insight. Thank you.


SAVIDGE: A fiscal fight. It is happening right now on Capitol Hill. And the deadline is just 32 hours away. We will bring are you the latest on the major sticking points.

And we will talk live to Congressman Eliot Engel.


SAVIDGE: Congress is talking fiscal cliff today, although the Senate convened earlier this afternoon there is no deal in sight as yet. Eliot Engel is a Democratic congressman from New York and he joins me live now from Washington.

Thank you very much for being with us, Representative.

REP. ELIOT ENGEL (D), N.Y.: Thank you, my pleasure.

SAVIDGE: So from your perspective, why are the talks at a standstill now at this crucial time with literally hours left?

ENGEL: Well, of course, John Boehner, the Speaker, has said that he wants the Senate to work out a deal and that if they work one out, they will send it over to the House and we will deal with it then. So, they are busy working it out.

I remain optimistic. I'm the eternal optimist. I think we'll pull a rabbit out of a hat and we'll have something. I don't think we'll go over the fiscal cliff. But you know, when you have negotiations going on at the last minute -- and it didn't have to be this way, and it shouldn't have had to be this way -- anything's possible, but I think we will pull it out.

SAVIDGE: Why do you think that? I mean, what gives you any level of optimism, given not just today but this problem has been around for a year and a half, if not longer, and nothing's been done. ENGEL: Well, I've been around this place now for 24 years and the general dynamics, I think, we for some reason wait until the last minute for many of these important things and then we are forced to negotiate in good faith.

I'm actually disgusted with it, because I think we should have had this a long time ago. I think the Senate will come up with an agreement and they'll send it over to the House and then the question is going to be will John Boehner get his Republican caucus to go along with him?

You know, he proposed raising the threshold for taxes to $1 million a year and was rebuffed by his conference --


SAVIDGE: But you've heard the Republican side of things, where they say, look, it is not just about taxes here, we have to talk about that are specific cuts that have to be made, because it is, after all, about deficit reduction. So their point is they don't believe enough is being cut as opposed to just taxes being raised.

ENGEL: Well, I think that in order to get our fiscal house in order, we have to both cut spending and raise taxes. The fact of the matter is the Republicans wouldn't even listen to any kind of raising taxes, even on the super rich.

Again, Boehner couldn't get it through his caucus at $1 million a year last week. So I think what we need to do ultimately, it's not going to happen now because there's no time to have a grand deal. But ultimately, we have to have a grand deal where we have to cut spending and increase taxes and we have to do that to put our country down the fiscal path of responsibility.

Now, the question though, it becomes a political question in the House, because John Boehner has not wanted to pass it with Democratic votes. There have been, just last year, I mean, there have been instances, where a majority of Republicans, but not enough to make a majority, are joining with --

SAVIDGE: Let me just interrupt you --

ENGEL: -- to make a majority --

SAVIDGE: Let me --

ENGEL: -- and we need to do that again.

SAVIDGE: Let me interrupt you for the moment, because we have heard both sides back and forth, and there's been plenty of political talking. So let me ask you this point, and this is more to the philosophy of democracy here.

Do you see that we have an inability as Congress to reach some sort of compromise? In other words, that we are watching the decay of democracy here in our inability to do anything or accomplish anything, especially when it comes to the fiscal cliff? Are you worried about the future and politics?

ENGEL: Well, I'm worried, of course I'm worried, but I think there are people like myself and others who understand that for the long- term good of the country, we have to meet in the sensible center, we have to do this and we haven't been able to do it.

I mean, as a Democrat, I have my feelings that the Tea Party ultraright-wing Republicans are the ones resisting making any kind of compromise, saying my way or the highway.

SAVIDGE: (Inaudible) --


SAVIDGE: -- to lay blame here, I'm just asking for your --

ENGEL: Well, I'm telling you what my perception is here. And I think that nobody can say my way or the highway. We have to come together. I think what we will do is we will pass a minimalist bill so that we won't go over the cliff and then I think we have to go from there.

We have the debt ceiling to deal with, when we talk about the debt ceiling, we have to have negotiations with the president, who I think is doing a fine job, by the way, and we have to sit down and work out a grand plan, whereby we cut spending and raise taxes and balance our budget once and for all.

We cannot keep doing this indefinitely. It's terrible for the country and the voters fed up and they are right. We have to meet in the middle and we have to compromise.

SAVIDGE: I hope you're absolutely right. Thank you, Congressman, very much, for joining us today.

ENGEL: Thank you.

SAVIDGE: There's no shortage of opinions, as you already know, about the fiscal cliff. And we will talk with a congressman whose words carry a little extra weight because he sits on the Budget Committee. Stay here.



SAVIDGE: Representative Tom Cole of Oklahoma sits on the Budget Committee, he's been dealing with the country's money problems all year, but now, well, we are down to those critical hours. And he joins me from Washington to offer his perspective here in this crucial dialogue.

So simply put, do you think we are going to get a deal in time, Congressman?

REP. TOM COLE (R), OKLA.: I do. I think the nature of these things is you always get down to the last minute. It's not a very good way to run a railroad but it's the way this railroad does run.

SAVIDGE: This particular railroad seems to have an air of desperation about it, though, as we get down to this.

COLE: Look, people are concerned, and they ought to be. And we are talking about every American's tax rates who pays taxes, we're talking about the extension of unemployment, we're talking about the estate tax. So this has got more elements in it than most things do.

But I think at the end of the day, you know, it's in the Senate now, I think the Senate will come to some sort of arrangement, they will push it over here. And then I think the House will be the decisive arena, and a lot will depend, obviously, on what the Senate agrees to.

SAVIDGE: But isn't that the question: what will happen in the House? I mean, I don't think we have a concern, or maybe I shouldn't say it quite that way, but the House seems to be the clear focus of whether or not Republicans can muster the votes that are needed. What do you think is going to happen?

COLE: Well, I think a lot, again, depends on the nature of the agreement. Remember on the Speaker's Plan B, he had over 200 Republican votes so it is not as if he doesn't have an awfully strong hand to play.

If it's a deal that John Boehner can accept, then frankly, I think it will be passed in a bipartisan manner with a very strong majority. If, on the other hand, he is either neutral or not favorable, then its chances are going to be a lot slimmer.

So he is still very much part of the negotiation and obviously, our people want to fix the tax issue but they want to move onto the things that really count and that's spending restraint and entitlement reform.

SAVIDGE: I don't want to get too deep into the weeds but what's the deal Tom Cole can accept?

COLE: Well, I can accept a deal that makes most tax cuts permanent for as many of the American people as possible. I don't want them to go up on anybody. But I recognize the --

SAVIDGE: Well, what is that, 400,000, 250,000?

COLE: No, I don't -- I'm not going to worry about what the number is right now. Let's just wait and see what the number arrives at. I don't see that as the main issue. I think the main problem, again, is the president's inability to really deal seriously with spending and entitlement reform.

But there's not enough revenue in this package, whatever the, quote, "number" is to fix the fiscal problems for the country.

And we are going to be entrenched in hand-to-hand warfare beginning in January with the continuing resolution, the debt ceiling and the sequester to try and deal with spending issues. And again, that's what my friends on the Democratic side have a hard time confronting.

SAVIDGE: So you don't see this as let's get past the cliff and then we're, whew, dodged that one? You see a long fight there?

COLE: I really do. I think, look, the deal with the fiscal problem that we have in front of us, no matter what your perspective is, this isn't enough revenue, but it's probably the last tax revenue that'll be available to the president.

Then it's going to have to be cuts and reforms. And again, so far, we haven't seen much from our Democratic colleagues on that. We have got some ideas; we've put them on the table in the Ryan budget, and we'll continue to do that. But they're going to have to get serious about cutting spending if the country's going to move ahead.

SAVIDGE: All right. Real quick: today or tomorrow on this deal?

COLE: More likely tomorrow, I mean, the closer to the last minute we get, the more likely it is.

SAVIDGE: OK. We will see. We won't hold to you it, but we will see. Congressman, thank you very much -- Tom Cole from Oklahoma.

COLE: Thank you.

SAVIDGE: And we are hearing from you about the fiscal cliff and sharing your messages right here for Congress and the country to hear. Our Josh Levs up next with those.



SAVIDGE: We have been listening to members of Congress, of course, when we're talking about the fiscal cliff, but I actually enjoyed more hearing from you, the people, because, after all, that's what democracy is all about.

Josh Levs is back now with some more of your messages for especially those in Washington.

JOSH LEVS, CNN CORRESPONDENT: Yes, I mean, look, this is part of what's inspired people in Washington to actually do something, is the mounting frustration in addition to the fiscal concerns, the mounting frustration all over the country, as people say is Congress going to actually do something now or not?

Everyone is in the spotlight there. A lot of people are weighing in via iReport. Take a look at this one that came in.


VERNON HILL, IREPORTER: My new year's message to Washington is to grow up, act like adults, do your jobs or resign immediately. We are tired of your being useless and refusing to do your jobs.


LEVS: Vernon Hill there, weighing in. And I'll tell you, some people are getting in touch about various fiscal concerns that they have about the way the economy works in general and they want to see some of that tackled right now. Take a look at one that came in today.


RICH POLLNER, IREPORTER: We keep on talking about having to make the tough decisions to cut spending on domestic programs in health care, or unemployment, education, Social Security. Yet we continue to spend billions of dollars every year in foreign aid for similar programs in other countries.

Does this make sense to you?


LEVS: Now, I tell you, some people on the other side say the United States doesn't actually spend enough on foreign aid, and we should spend a larger percentage of GDP -- that battle continues. But what we are seeing is more and more people right now as Congress looks at this fiscal cliff, talking about the things that concern them.

But I want to tell you, there's some of you watching right now who think the country should go over the fiscal cliff, and we're going to start off with a quote right there that I got on Facebook, what we're talking about this, this one says, "Let's go over it. It's long overdue and we need several more just like it.

Some politicians see it as the easiest way of implementing long overdue cuts without endless congressional squabbles." That's from Adam Chance Campbell (ph), wrote on my Facebook page.

Now y'all will like the next one, take a look at this quote we got here from Jeff Clark (ph), "What the Mayans couldn't do in thousands of years both houses of Congress are doing."

Now let me tell everybody, the world will not end if we go over the fiscal cliff. I don't want you all to feel that way. That doesn't mean there aren't serious concerns for a lot of people involved.

A couple more here also from Facebook, this one says, "They need a reality check in how the 98 percent really lives." That's from Felicia Persaud (ph) at Facebook.

And one more here: "The people have expressed their desire for ending the Bush tax cuts and ending these last-minute confrontations in Congress."

This debate is continuing. And Martin, I will tell you, we are getting a lot of messages across all platforms, I'm tweeting with you all at joshlevscnn throughout our shows this evening, also at Facebook, joshlevscnn. Send us an iReport, folks; put together a little video if you want to. We might share some of it right here. Is -- this is one way of getting your message out to the country and to lawmakers in these final hours before the end of the year, which could bring with it some big, big, big financial changes for all of us.

SAVIDGE: Absolutely, Josh, let's hope the folks in Washington are listening and watching. Thank you.

LEVS: Thank you.

SAVIDGE: The deadline for that fiscal cliff, well, we have said it, 32 hours. We will bring you the latest on the major sticking points.