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THE SITUATION ROOM

Interview With Senator John McCain and Senator Lindsey Graham; Fiscal Cliff Deal Close?; Hillary Clinton in Hospital; U.S. to Go Over the Fiscal Cliff

Aired December 31, 2012 - 16:00   ET

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


WOLF BLITZER, CNN ANCHOR: Happening now.

(BEGIN VIDEO CLIP)

BARACK OBAMA, PRESIDENT OF THE UNITED STATES: ... how we solve this thing, then they have got another think coming.

SEN. JOHN MCCAIN (R), ARIZONA: That's not the way a president should lead. This is -- these are draconian effects.

(END VIDEO CLIP)

BLITZER: The partisan wrangling hits a fever pitch here in Washington with only eight hours left before the country tumbles over that so-called fiscal cliff.

We're live with the very latest.

Also, cries of outrage from Americans across the country -- what the impasse means for small business owners, and who's to blame.

And a blood clot lands Hillary Clinton in the hospital this New Year's Eve. Our own Dr. Sanjay Gupta tells us just how serious this condition could be and what it could mean for her health.

We want to welcome our viewers in the United States and around the world. I'm Wolf Blitzer. You're in THE SITUATION ROOM.

We're now less than eight hours away from what could be a dire moment for the United States economy, if -- if President Obama and the Congress can't agree on a deal to keep the country from plunging over that fiscal cliff.

Here's what both sides are considering in a potential deal right now, an increase in tax rates for families making over $450,000 a year, extending unemployment benefits and an increase in the estate tax. The president seemed hopeful, but cautious when he addressed the American people earlier today.

(BEGIN VIDEO CLIP)

OBAMA: Today, it appears that an agreement to prevent this New Year's tax hike is within sight. But it's not done. There are still issues left to resolve. But we're hopeful that Congress can get it done. But it's not done.

(END VIDEO CLIP)

BLITZER: Let's get straight to our chief White House correspondent, Jessica Yellin. She's over at the White House with the very latest.

The president seems pretty optimistic that it's within a few hours we could have a deal, right?

JESSICA YELLIN, CNN CHIEF WHITE HOUSE CORRESPONDENT: Well, Wolf, the people I just spoke to here say they are no more or less optimistic than they were this morning, which is to say they are not cuing the confetti just yet.

Senator Mitch McConnell, the Republican leader on the Hill, is still talking to the White House. The White House is in constant contact with Democratic Leader Harry Reid. And they're working towards some kind of an agreement. But the White House has all along had during these past few days been somewhat hopeful that they could reach some kind of agreement in the Senate. All along, they have been far less optimistic that there would be an agreement that can get through the House, only because from the White House's perspective, from Democrats' perspective broadly, they have been let down time and again by Speaker Boehner.

They have never been able to reach a deal with Speaker Boehner. And now with this news that the House is going to be breaking for the evening, it does look like that might happen again.

Now, there's one reason, Wolf, why they are filling this package with measures that could appeal to Democrats, not just, as you mentioned, increasing -- letting taxes for the highest income earners go to Clinton rates, also extending unemployment benefits. But also it includes tuition credits and tax credits for kids, because these are designed to woo Democratic votes. If it goes to the House, they need as many Democrats to support this as possible -- Wolf.

BLITZER: They need a combination of 218 in the House of Representatives. That vote is not going to happen, clearly, today.

As you know, Jessica, the president now facing some criticism over the remarks he made over at the White House earlier in the day. Walk us through what the political calculations were in his decision to go out and do that speaking event earlier in the day.

YELLIN: Well, it was a two-pronged effort, right. There was on one hand an effort to push Democrats to get on board. He was surrounded by a so-called regular Americans who would see their taxes go up if there is no deal.

And he made the case to Democrats that -- and to the broad Congress, but mostly his own party -- that this is filled with measures that would appeal to their own voters, and they could live to fight the right of their priorities that aren't in this package another day. But then there was a lot of red meat in his speech. At one point, he said some words that are getting now some attention, some criticism from Republicans who thought it was quite partisan. He accused Republicans of trying to -- quote -- "shove spending cuts down -- well, shove spending at us," a bit of a dig.

And so this is a part of it would seem a P.R. effort to wage blame -- lay blame on the Republicans in case this fails. The president trying to get as much distance from this and laying this as a congressional effort, not a White House effort, but a congressional effort, again, in case this fails before we -- and we go over the cliff, Wolf.

BLITZER: Over at the White House, do you have any idea when the Senate might be taking up this, have a roll call on whatever deal might be emerging? Do we have any clue what time that might happen?

YELLIN: I don't, but I have a feeling that we should try checking in with Dana Bash. She will have the first word on that.

BLITZER: Let's go to Dana Bash right now and check in with her.

Dana, first of all, the reaction to the president's remarks. We heard some biting criticism that the president was inappropriate in saying what he said at this sensitive moment.

DANA BASH, CNN SENIOR CONGRESSIONAL CORRESPONDENT: That's right. I will get to that in one second.

But to answer your question, we don't know yet about the Senate, but we do have a little bit of news that Jessica alluded to, and that is the House will break tonight. We reported earlier that this is very likely to happen, but now it's official. The House will break tonight, New Year's Eve, December 31, the night of the fiscal cliff, without voting on the fiscal cliff package.

They're going to likely come in, if there's something to vote on tomorrow, and vote on it then. But this is a procedural reason because they just don't have anything to vote on. But it's also politically advantageous, because House Republicans and Democrats are now going to be able to vote on effectively a tax cut, not a tax increase, because taxes will all go up on January 1.

To answer your question about the reaction from Senate Republicans, I think the best way to answer is by telling you what Mitch McConnell did. He's the Senate Republican leader, he's the one who has been the point person with the vice president for the past 24 hours in these negotiations.

He went to the Senate floor and he said, you know what? You're right, Mr. President. We are so close. In fact, we are so close on almost everything that we should just hold a vote right now. He believes that they're there, they have a deal on most of the tax -- all of the tax issues and most other issues except for one outstanding issue, and that is the sequester, those mandatory spending cuts, how to delay those and in what timetable and in what fashion. Democrats simply haven't -- we haven't heard from Harry Reid yet, but privately Democrats are saying we're not ready to do that yet because we still don't think we have a deal. Mitch McConnell trying to sort of push things along by saying that publicly, that he's fine with voting on all of the things they have agreed on right now.

BLITZER: But, Dana, let's get back to this procedural issue, the vote in the House presumably tomorrow, but that only follows a vote in the Senate. That vote in the Senate has to take place, correct me if I'm wrong, between now and midnight, is that right?

BASH: If we don't officially go off the fiscal cliff, yes, that's correct. If it happens after midnight, then officially, everybody's taxes will go up.

The real-world effect won't happen quite yet because people won't get their paychecks on January 1. I mean, things take a couple of days to actually happen practically. And the Senate very well could come in tomorrow on a federal holiday, on January 1, when the markets are not in session, markets aren't operating, so there's nobody to be spooked by Congress failing to do this.

But we're sort of not there yet. We are still eight hours away. And according to some sources I just talked to before coming on to you, legislatively, technically and logistically, they feel that they could probably get this stuff written. In fact, most of it is written already. They can put it together pretty fast and get it on the floor for a vote. So the next few hours are absolutely critical to figuring out if that is going to happen.

BLITZER: But it's fair to say, Dana, and I want to be precise, that the United States is now going to go over the fiscal cliff? Because the House of Representatives will adjourn and they will not consider anything that the Senate might pass tonight. So we are going over the fiscal cliff, isn't that right?

BASH: Technically, that's absolutely right, you're right, because to not go over the cliff, both houses of Congress will have to pass something to avert that, and the president will have to sign it.

So that is true. And that is why, as I said, politically, there aren't a lot of -- there are some people who aren't that upset about it, because it kind of makes the medicine go down a little bit easier when they vote on these cuts.

Having said that, we have heard from Democrats in particular, for weeks now, that, you know, to sort of take a deep breath, that, yes, it is called the fiscal cliff, but it is more of a slope, and it is particularly advantageous to members of Congress who haven't gotten their work done that January 1 is a federal holiday. So nothing is going to happen and there aren't going to be any real-world effects, especially when we're talking about the thing that really matters the most to a lot of people around here, which is how the market is reacting.

We saw the market go up today at news, seemingly at news that things were going well here. So, but, technically, I think you're right. I think if the House doesn't vote tonight, which we know they will not, technically they go over the cliff.

BLITZER: Go over the cliff.

Very quickly, Dana, that 72-hour rule in the House, I believe there's a rule that they have to have 72 hours to read legislation before they vote. Are they going to waive that rule?

BASH: What do they say about rules? They're made to be broken, Wolf. I think that's safe to say. They would waive that rule, yes.

BLITZER: OK. All right, Dana, stand by, because we have two guests joining us right now, two key senators, Republican Senators John McCain of Arizona and Lindsey Graham of South Carolina.

Senators, thanks to both of you for coming in.

Let's go to Senator McCain first.

I know you were angry at the tone of the president's comments today, but give us your sense. Are you going to vote for this legislation, assuming there's a deal?

MCCAIN: Well, it depends on the deal, obviously.

But if it does not have at least a delay in implementation of sequestration, which the secretary of defense has said will be devastating to national security, then I probably cannot vote for that, unless that's included in the deal.

BLITZER: What if it's a two or three-month delay, sequestration going into effect, in other words, those billions of dollars in defense cuts that are supposed to go into effect right away, if it's delayed for two or three months, is that good enough to get your vote tonight?

MCCAIN: I think I would have to see the rest of the package obviously, Wolf. And I want to support anything that would avert what's going to happen if we don't act.

But at the same time, I can't vote for something that I think -- and I agree with the secretary of defense and the chairman of the Joint Chiefs of Staff -- that would devastate national security. But I could certainly support a delay in its implementation. But I would have to -- I would also want there to be a specific date for us acting on sequestration.

BLITZER: Senator Graham, I know you agree on that specific issue with Senator McCain.

But you know we are now technically going over the fiscal cliff, because the House of Representatives is going to adjourn. They're not going to consider anything that you guys in the Senate might pass at least until tomorrow. So from your perspective, what does that mean, Senator Graham, that the country, the United States, is now going over the fiscal cliff?

SEN. LINDSEY GRAHAM (R), SOUTH CAROLINA: I just think it shows the dysfunction of the political system.

And back to the president's performance today, that was pretty unusual, to have a -- kind of a pep rally in the middle of negotiations. What John said about defense cuts going into effect, shooting the military in the head, according to Secretary Panetta, is real and true.

But I want to cut $1.2 trillion over the next decade. We're going to spend $46.5 trillion. It's not hard to find $1.2 trillion. I just don't want to destroy the Defense Department. So if you delay the cuts, you're going to lose votes in the House. You're going to lose votes in the House because people in the House want to cut the government. I want to cut the government. I just don't want to destroy the Defense Department.

BLITZER: Do you have any idea, Senator McCain, as we speak right now, when the Senate will vote on whatever agreement has been reached?

MCCAIN: Well, I think there's hopes that we vote tonight or tomorrow.

I know there are concerns about the sequestration aspect of it. We're also very concerned that there's no spending cuts associated with a tentative deal. But there's no doubt that the president -- a little straight talk, Wolf. The president has won the election. He does have an advantage here.

He has a larger approval rating than the Congress does. But that doesn't mean that we sacrifice principle. And sequestration to me is a principle.

BLITZER: That's a very important issue. But I assume they're going to work out an arrangement that they will delay that sequestration, those automatic defense cuts, at least for a few months. Presumably, that will allow -- I assume that will allow you, Senator Graham, to go ahead -- and you might not be thrilled with this compromise, but if it's $400,000 for individuals, $450,000 for couples, that would be acceptable to you, and let the -- those people earning more than that a year see their tax rates go from 35 percent to 39.6 percent?

GRAHAM: Hat's off to the president. He won that argument.

Bowles-Simpson didn't raise rates. They eliminated deductions to generate revenue. The gang of six did the same thing. Raising rates is a solution the president came up with. It's not bipartisan, but I would vote for the deal you just described.

Back to sequestration, we promised the American people in August when we raised the debt ceiling by $2.1 trillion, we would offset the debt ceiling with a dollar-for-dollar cut. The $1.2 trillion, the super committee's failure to find those cuts, was part of the Budget Control Act deal in August of 2011. If we set aside those spending cuts, we broke our promise to the American people to pay for more borrowing. So I think you lose a lot of votes in the House if you don't offset sequestration for at least a couple months, not just delay it.

BLITZER: Does it make any...

(CROSSTALK)

MCCAIN: Could I...

(CROSSTALK)

BLITZER: Yes, go ahead, Senator.

MCCAIN: Wolf, the president, during the campaign and just before said sequestration won't happen. He didn't say it might not, didn't say - he said it won't happen. So I hope he would keep to that pledge in these negotiations that are going on.

GRAHAM: Can I just add something, Wolf? We've made about 10 different proposals to offset the effects of sequestration on the Defense Department and other areas of the government until March of this coming year, that's about 22 billion. They say "no" to everything. We've got three and a half trillion dollars to choose from and trying to find and offset for three months, it's ridiculous. You can't find an offset for three months.

BLITZER: Are you going to use the raising of the debt ceiling in February or March, Senator McCain, as leverage to get what you want from the President?

MCCAIN: I think there's going to be a whole new field of battle when the debt ceiling rolls around. Most of us have pledged that we're going to have to, before we vote again to raise the debt ceiling even though it may be a great political cost, we've got to address spending. And that meant entitlements. We've got to sit down together and get us back on a path. Look, we just added 2.1 trillion in the last increase in the debt ceiling, and spending continues to go up. I think there's going to be a pretty big showdown the next time around when we go to the debt limit.

BLITZER: Yeah, well there will be another round of fighting to be sure. Let's see what happens of the next 24 hours, but it's clear right now since the House is about adjourn that the U.S. is going over the fiscal cliff at least technically. We'll see what the Senate does tonight if anything, what the House of Representatives does to follow. The stakes, as all of us know, are enormous. Senators, thanks very much for joining us.

MCCAIN: Thank you.

GRAHAM: Thank you.

BLITZER: Congress had well over a year to tackle this fiscal cliff. Instead, we've come down now to the final eight hours before our nation takes a severe hit potentially to the economy.

(COMMERCIAL BREAK)

BLITZER: All right. We're following the breaking news. The United States will, yes, will be going other the fiscal cliff, at least technically. The House of Representatives deciding only moments ago that it will not consider any legislation that might be passed by the Senate tonight. As a result, fiscal cliff, that's going to be a fact of life.

Let's bring in our senior congressional correspondent Dana Bash, once again. She's joining us.

Dana, tell us the very latest, because, as you and I have been pointing out, technically at least, we're going over the fiscal cliff.

DANA BASH, CNN SENIOR CORRESPONDENT: That's right, we are. And since the couple of minutes ago that you and I talked, that Senate Republican Leader Mitch McConnell has called a meeting right down there, I'm in the House side, over there on the other side of the rotunda is the Senate, and not too far away from there is where Senate Republicans are going to meet.

We don't know yet whether or not Senator McConnell is going to announce they do actually have a deal or whether he's simply going to give them a status report or, you know, many other variations of what they could be talking about. So we're going to try to monitor that. That meeting starts probably in about 10 minutes.

But, back to what we talked about at the beginning of the hour, it certainly is noteworthy but perhaps not surprising, since we don't have a deal, that the House of Representatives has decided that they're going to have one vote on a nonrelated issue in about an hour and a half or so, and then they are going to go home for the evening. They're going home before the clock strikes midnight.

I was just actually e-mailing with some House Republican sources, Wolf, to find out if they waited to make this official -- when I say official because we have been reporting pretty much all day that this is the likely scenario, but if they waited to make it official, until the markets closed in order not to speak them because as you and I have been talking about, the markets are not open tomorrow, it's a federal holiday, it's New Year's Day. I haven't gotten a response to that. The only thing I've seen is more of a shoulder shrug, what else are we supposed to do. We can't sit here with nothing to vote on because the Senate doesn't have a deal, much less a vote yet.

BLITZER: You know, I've been hearing from Republican sources who are knowledgeable about what's going on, Dana, that they basically reached an agreement on virtually everything except one sticking point. And just reiterate what is that major sticking point that is preventing Harry Reid, Mitch McConnell, from letting this legislation come up for a roll call vote on the floor of the Senate?

BASH: That sticking point has to do with those mandatory spending cuts that Congress put in place a year and a half ago in order to try to force themselves to cut spending elsewhere. The question is -- it's called the sequester -- the question is whether or not to delay them.

And the big sticking point right now, it depends on who you talk to, Republicans, Wolf, they say the sticking point is over the fact that they believe the agreement is to delay the sequester for two months and replace it with other spending cuts. And they say the Democrats simply aren't telling them what those cuts are. They say it's about $24 billion, which when you're talking about this kind of amount, is not very much.

Talk to Democrats, however, they say that's not the issue. They, at least the Democrats in the Senate, want to delay the sequester for more than that, maybe up to a year.

So that is where the sticking point is. That's why Mitch McConnell, as we talked about at the top of the hour, went to the Senate floor after the president spoke and said, we have a deal on everything else, all of the tax issues, so many other issues, let's just take a vote and move on. And that would effectively mean the sequester would go into effect January 2nd. A lot of federal agencies would start having to figure out how they're going to cut.

BLITZER: And you heard Senators McCain and Graham say they couldn't support it if those Defense Department cuts are automatically going to go into effect right now. They couldn't support it. That's why there is this desire to kick the can down the road at least two or three months, maybe longer, as far as the Defense Cuts are concerned.

Dana, stand by, because Tom Foreman is joining us right now. Tom's been taking a very close look at some of these late-minute sticking points.

What are you seeing, Tom?

TOM FOREMAN, CNN CORRESPONDENT: It's been interesting, Wolf, to watch the goal post moving during this negotiation here, because as you know, one of the real sticking points we've heard for a long time here is this question of income tax and where the threshold would be for a tax increase.

Now, obviously, if we went over the cliff, if we go over the cliff and nothing else happens, everybody's taxes rise. The White House has been arguing for quite some time they did not want that to happen. But instead, they wanted taxes to rise for people who make more than $250,000 a year. We're talking about couples right now.

That was the target for the White House. And Republicans, by and large, said they don't want taxes to rise for anybody but if they had to, they put the threshold down here at about $1 million a year for people making income out there. This has gone back and forth, a lot of tough, tough words on both sides.

And this is where we stand at this hour, Wolf, in terms of negotiations. Down here at around $450,000 per couple, $400,000 for an individual in terms of annual income. Below that, no tax increase. Above that, a return to the Clinton era tax level for the highest earners. That would go from 35 percent for the highest earners to 39.6 percent. They think that would generate about $600 billion by doing this.

If you look at this, in a raw sense, Wolf, you would say the negotiation seems to have favored the president and that seems to be what was pushed in large part by Senator Graham there a short while ago when he said congratulations to the president on these negotiations.

However, it's important to bear in mind, even though this may represent what seems to be a win on this id so, the Republicans started of with the claim that many people did not think they'd get anyway. The White House had said some pushback from Democrats also who come from urban areas, who have a lot of people in their constituencies, Congress members out there who have people who make more than $250,000 who are a little bit worried about it getting too far down here.

So, Wolf, this was the big sticking point for a long time. But now it does seem to have moved to sequestration. And that's where the debate seems to go on.

BLITZER: Let's talk about sequestration. It's a fancy word. It basically means automatic cuts go into effect, beginning tomorrow morning, January 1st -- even though it's a federal holiday -- unless legislation is passed to stop that.

FOREMAN: Yes, that's absolutely right. The question of what you do with sequestration at this point is completely up in the air. Because if this is the new bargaining chip, we don't know what happens to these. The whole purpose of them being automatic in the first place was for both parties to be pushed to a deal.

At this point, that seems to be the complaint of some Congress members, saying, look, if you just keep moving it when you get close to the deadline, then what kind of deadline is it? You have to deal with these grapples at some point -- Wolf.

BLITZER: And the bottom line, at least now, as we await action on the floor of the United States Senate, if there's a deal or no deal, legislation could come up for a roll call vote. But the bottom line is since the House of Representatives has gone into recess, at least for the night, the U.S. is, is going over that so-called fiscal cliff. We'll see what happens over the next few hours.

Tom Foreman, thank you.

Much more on the fiscal cliff coming up.

There are serious ramifications for almost every American involved in this negotiation. We'll update you when we come back.

(COMMERCIAL BREAK) BLITZER: All right. We've got the breaking news we're following here in Washington. We've been thinking about it. We've been talking about it for a long time. But guess what? The United States is now going over the so-called fiscal cliff. That's because the House of Representatives is adjourning as we speak right now, will not consider any legislation that may be passed by the Senate later tonight.

For all practical purposes, at least technically, we're going over the physical cliff. We'll see what happens over the next few hours. Let's bring in our chief business correspondent Ali Velshi. He is joining us from New York.

He is going to be with us throughout our coverage of all of this. Ali, practically speaking, I'm not sure it does have a huge impact, although technically we're going over the cliff.

ALI VELSHI, CNN CHIEF BUSINESS CORRESPONDENT: Sure, technically, we are going over the cliff. People have been asking me that. What it means is, if it doesn't get fixed tomorrow or in the next couple of days, we are over the cliff.

The issue is, do we hit an outcropping on the way down, or can we get a parachute and get rescued? Bottom line is as of midnight tonight all the effects of the physical cliff do start and that is problematic. The only good news is that tomorrow is a federal holiday, which means a lot of the actual mechanics of what is about to happen won't happen until Wednesday.

And one of the biggest things, Wolf, is markets will not open. If not, we will not see any markets in the world start trading until Tuesday evening our time 8 p.m. So what the Congress is done in a very crafty ways after having 517 days to not get this done, they seem to have bought themselves another day.

But the bottom line is, yes, we're over the cliff technically. If we remain over the cliff 24 hours from now or 48 hours from now when markets start to open in Asia, then you're going to possibly see a very serious reaction to it, but we've bought a little bit of time.

BLITZER: I don't want you to leave because I want to stay with us, Ali --

VELSHI: I'm not going anywhere.

BLITZER: I want to bring in someone else who knows a little bit about the politics of taxes a lot better than most of us. Joining us now is the University of Southern California Law Professor Ed Kleinbard. He previously served as the chief of staff on the Joint Congressional Committee on Taxation here in Washington.

Ed, thanks very much for coming in. Practically speaking, let's assume the Senate passes legislation tonight and tomorrow, the House of Representatives narrowly gets 218 votes. They pass the exact same piece of legislation. Having gone over the fiscal cliff technically, does that have any real substantive impact? ED KLEINBARD, FORMER CONGRESSIONAL TAX POLICY ANALYST: No, Wolf, it really doesn't and frankly, even if it goes a few days past that, Congress can retroactively reduce taxes to January 1st and no one's going to be late off in the federal government on January 2nd or 3rd. So we actually in my view have a few days in which to work this out.

BLITZER: Yes, but here's my concern and I want Ali to get involved in this conversation. Here's my concern. The longer it's not worked out, the more likely it won't be worked out because all sorts of extraneous issues will come up and it's going to be more complicated. You worked in Congress for a long time, Ed, you agree or disagree?

KLEINBARD: No, I agree, it becomes more difficult. And if it stretches later into January then everything changes because then we'll be looking at a number of lawmakers trying to defer any decision until the debt ceiling crisis, and they'll try to roll everything into the debt ceiling crisis. It needs to be done in the first week of January.

VELSHI: Let me ask you this, Ed, there are sort of two ways looking at taxes. One is from the government perspective about revenue and sort of the larger issues that we're dealing with. The second one is payroll, companies that use payroll services or companies that handle these themselves. At what point does this become a concern for those companies? Is it when the first check gets cut after the New Year or are they worrying about it now?

KLEINBARD: No, it's a great question. It turns out the IRS sets withholding tax rates. The IRS has not directed anyone to change their withholding yet. I think what the IRS is relying on is first that they expect Congress to do the right thing.

But even if Congress ends up doing the wrong thing, and raising everybody's taxes, and does that sometime in January, most Americans get tax refunds at the end of the year. I think the IRS is relying on the fact that they have that cushion.

So that even if, God forbid, tax rates go up for everybody, which I don't envision, that still gives the IRS and payroll companies time to change the rules. The result will be smaller refunds for most Americans, but not necessarily a big check.

So there's a little bit of time there. The one place where you will see a smaller paycheck starting with your first paycheck in 2013 is the payroll tax because nobody's proposing to continue the 2 percent payroll tax. Family, $50,000 a year income is going to pay $1,000 a more in tax from that alone.

BLITZER: But that was always seen as a temporary tax cut, to stimulate the economy, to create some jobs, right, Ed?

KLEINBARD: Yes, it was. Of course, the trouble is everything we're talking about, including the Bush income tax cuts, originally described as temporary. "Temporary" doesn't mean the same thing in Congress as it means to you and me. Yes, you're absolutely right that the payroll tax cut was described originally as a temporary provision to deal with the economic collapse.

BLITZER: We've got to leave it there. I just want to point out that if, in fact, they reach an agreement where there will be no tax increases for individuals making under $400,000 a year, and couples making under $450,000 a year, those temporary -- temporary Bush tax cuts in 2001 and 2003, they will become permanent for all Americans earning under $400,000 as individuals, $450,000 as a married couple.

Those become permanent. No longer become temporary tax cuts. All right, guys, thanks very much. Ali, don't go too far. Ed Kleinbard, appreciate your help in understanding what's going on.

The stakes as I keep saying are enormous for millions and millions of Americans. The fiscal cliff is certainly the classic Washington crisis where no one winds up looking very, very good.

Coming up in our "Strategy Session," we're going to break down some of the politics of cliff to see who if anyone is winning.

(COMMERCIAL BREAK)

BLITZER: Let's get right to our "Strategy Session," lots to discuss. Joining us, the Democratic strategist, Jen Psaki, the former deputy communications director in the Obama White House, worked in the campaign, as all our viewers know and joining us from Miami, our CNN contributor, the Republican strategist Ana Navarro.

Ladies, thanks very much for coming in. Let me start off by playing a little excerpt of what the president said earlier today.

(BEGIN VIDEO CLIP)

BARACK OBAMA, PRESIDENT OF THE UNITED STATES OF AMERICA: We're hopeful that Congress can get it done, but it's not done. We can put all this behind us and just focus on growing our economy. But with this Congress, that was obviously a little too much to hope for at this time.

You hear that sometimes coming from them. It's sort of, after today, we're just going to try to shove only spending cuts down -- well, shove spending -- shove spending cuts at us. So, as this point, it looks like I'll be spending New Year's here in D.C. You all are going to be hanging out in D.C. too. I can come to your house, is that it's right, sir? I don't want to spoil the party.

(END VIDEO CLIP)

BLITZER: He was clearly trying to generate support for his side of this story, Ana, but a lot of Republicans came out very, very angry. They say this is not the moment for the president to be joking about these sensitive issues at a critical time when they're very close to a deal.

ANA NAVARRO, CNN CONTRIBUTOR: I agree with that. I think it was a very odd press conference. He has been incredibly articulate since being elected. He's someone whose best speeches have been done since being elected. But I tell you, today was inappropriate. The tenure, the tone, was inappropriate.

I walked in when he was just beginning. I walked into clapping and joking and laughing. I thought I was hearing something else. I thought maybe he was at some party or celebration. I thought maybe we had reached a deal.

The bottom line is there's nothing to be laughing at. There's nothing to be joking about the United States is going over the fiscal cliff. And it is a failure of both our branches of government, of Congress but also of the president.

He many times, Wolf, talks as if he's a visitor in Washington, still teaching a current affairs class at the University of Chicago. Look, I'm willing to tell my Republicans in Congress, folks, we need to work with the president. But the president also needs to work with Congress.

BLITZER: All right, hold on for a moment because I want to bring Jen Psaki into this conversation. Senator McCain, he minced no words. Listen to what he said following the president's remarks.

(BEGIN VIDEO CLIP)

SENATOR JOHN MCCAIN (R), ARIZONA: Historians judge presidents by what happens on their watch. For the president to go out and make comments, which clearly will antagonize members of the House, what he is saying to the Republicans on both sides of the aisle, but particularly the House of Representatives, take it or leave it. That's not the way presidents should lead.

(END VIDEO CLIP)

BLITZER: All right, go ahead and react to what the senator -- he's not a happy guy. A lot of Republicans, Senator Corker, a whole bunch of others said, you know what, the president can do this kind of stuff, but why do it in sensitive moment in the negotiations like this?

JEN PSAKI, FORMER WHITE HOUSE DEPUTY COMMUNICATIONS DIRECTOR: Well, look, first, I have to say there are millions of people across this country that are frustrated, that can't figure out why Congress hasn't been able to get this done. I think the president was channeling their frustration.

He was, you know, having a moment out there, explaining what was about to happen, explaining that we were close to a deal and channeling what many people across this country are feeling.

You know, if House Republicans were able to or willing to negotiate, if they weren't going to go home tonight, if they would have a discussion about how to move this forward, maybe we wouldn't be in this place to begin with.

But for anybody who is complaining, Ana, Senator McCain, I suggest you have some spinach and you know, strengthen up because it's a tough fight, we have to get through it together. BLITZER: All right, Jen Psaki, hold on. Ana Navarro, hold on as well. We have breaking news we're following right now.

We're just getting new information into THE SITUATION ROOM. It's not good information about the Secretary of State Hillary Clinton and her condition. She's been hospitalized as you know after suffering a blood clot. We did not know until right now where that blood clot has been located.

Let's bring in our foreign affairs correspondent Jill Dougherty. Jill, we got a statement from her doctor and it's very worrisome.

JILL DOUGHERTY, CNN FOREIGN AFFAIRS CORRESPONDENT: Yes, just a minute ago, Wolf, here it is, it's coming from Secretary Clinton's doctors. There are actually two of them, Dr. Lisa Bardak and Dr. Gigi Albayumi. And I'll read it in full because it's pretty technical.

It says in the course of a routine follow-up MRI on Sunday the scan revealed that a right -- revealed that a right transverse sinus venous thrombosis had formed. This is a clot in the vein that is situated in the space between the brain and the skull behind the right ear.

It did not result in a stroke or neurological damage. To help dissolve this clot, her medical team began treating the secretary with blood thinners. She will be released once the medication dose has been established. In all other aspects of her recovery, the secretary is making excellent progress and we are confident that she will make a full recovery. She is in good spirits, engaging with her doctors, her family and her staff.

So this is the update from Secretary Clinton's doctors. Giving us information about that question, which really has been hanging out there all day, unanswered. Exactly where was that blood clot. Speculation had been it might be in her leg where she had a problem a number of years ago back in 1998.

But now we're finding that it is between the brain and the skull behind the right ear. However, they're noting, again, the doctors, that she did not have a stroke or any neurological damage. And apparently, other than that, she is recovering quite well -- Wolf.

BLITZER: Are they explaining why they didn't tell us this yesterday, 24 hours ago, when they left us all wondering where this blood clot was? Because there was so much speculation it was in the leg, and then I was wondering, is it in the lung, is it in the head, where is it, and they just left us hanging, now, for 24 hours. Why didn't they explain that to us right away?

DOUGHERTY: Well, Wolf, that's a good question. I think a lot of people have been answering that because as you mentioned, it has been raising questions all day speculation where it could be. Initial speculation was that it could be in her head, in some, you know, section, maybe near the brain. After all, she did have a concussion.

And that was a first surmisal, but then as they talked about the medication that she was on, blood thinners, our own Sanjay Gupta, the chief medical correspondent for CNN, was indicating that it might -- of course, he didn't know all of the details, but he was saying it might be in the leg.

Because after all, as we were saying, in 1998, she did have deep vein thrombosis behind her knee, in her leg and that might have been it. But now it's turning out that it's not it. And it feels much -- it obviously is in her head and that feels more worrisome, at least to the lay person.

BLITZER: Well, let's get an expert opinion right now. Jill, thanks very much. Joining us is Dr. David Deaton of Georgetown University School of Medicine. He's chief of vascular surgery.

Dr. Deaton, thanks very much for coming in. I've been very worried ever since I heard she had a blood clot that it was in the brain. That sounds to me, as a lay person, much more serious than if it's in her leg or in some place else.

DR. DAVID DEATON, CHIEF OF VASCULAR SURGERY, GEORGETOWN UNIVERSITY HOSPITAL: Well, it's always serious when you get a blood clot anywhere in your vascular system. The vast majority of people when they describe a blood clot. They are referring to the legs. I think that's what led to speculation. In the head, it's still in the venous system. As long as she's asymptomatic, she will probably recover without any sequela.

BLITZER: Without any what?

DEATON: Sequela, without any future problems.

BLITZER: Is there ever a need for future surgery if you have a blood clot, as it says here in the statement from her doctors, a blood clot situated between the brain and the skull behind the right ear? What does that say to you?

DEATON: Well, this is really within the specialty of neurosurgery, but to my knowledge that would be very, very rare.

BLITZER: So how do you treat a blood clot in the brain?

DEATON: Well, your body's own system has a way to break up blood clots. We treat with what are called blood thinners. These are anticoagulants that change the balance in the body so the body can resolve that issue and heal itself.

BLITZER: So let's go through this line by line and give us your expertise. Obviously, you have not treated Hillary Clinton. You don't know the specifics, but you do know what her two doctors, Dr. Lisa and Dr. Gigi, have pointed out to us. In the course of a routine follow up MRI on Sunday, the scan revealed that a right transverse sinus venous thrombosis had formed. What does that mean?

DEATON: The transverse sinus is one of the large veins that is draining blood from the brain to go back to the heart. So this is a low pressure system and just like in the leg where we have deep vein thrombosis, this is basically deep vein thrombosis in the head, rather than in the leg.

BLITZER: Because it says this is a clot in the vein situated between the space, between the brain and the skull, behind the right here so it's not necessarily right in the brain but it's near the brain.

DEATON: No, these veins travel over the surface of the brain, so it's not describing a bleed inside the tissue of the brain itself.

BLITZER: Hold on one second, Doctor, I want to take a quick break. We have a lot more to discuss. Obviously, all of us are worried about the Secretary of State Hillary Clinton. She does have this blood clot in her head now.

We are told it's not in her lungs, not in her leg, as a lot of speculation had occurred, much more of the breaking news on the secretary of state's health right after this.

(COMMERCIAL BREAK)

BLITZER: Following breaking news out of New York. Secretary of State Hillary Clinton has been now diagnosed a blood clot in her head, near the brain, near the area between the brain and the skull, right behind the right ear.

We're talking with Dr. David Deaton, chief of Vascular Surgery at Georgetown University here in Washington. What happened based on all the information we're getting is she was suffering from the flu, severe case of the flu. She was dehydrated. She fainted at one point.

She hit her head, had a concussion it and now we've learned she has a blood clot that was discovered by a routine follow-up MRI on Sunday, in her head, near the brain, behind her ear. Give us your perspective now. Did the blood clot, based on your expertise, originate from the concussion?

DEATON: I think it was likely associated with the concussion, yes.

BLITZER: So what does that mean in terms of her prognosis? What does she need to do? If you were helping her, you've helped people in situations like this, what would you tell her?

DEATON: Well, the primary determinant of how she'll do is how she's doing currently. If in fact, she is clinically stable and neurologically stable, all the information as described thus far, she'll probably recover without any further incident.

BLITZER: Recover completely or will there be lingering effects?

DEATON: No lingering effects in general.

BLITZER: Will she have to take medication for a prolonged period of time? DEATON: It's likely if she's being treated for at least in the lower extremities for deep vein thrombosis, we treat people for 3 to 6 months with anti-coagulants.

BLITZER: The good news, based on the statement from her doctors, is that the blood clot in her head did not result in a stroke or neurological damage. They know that already, that there's no stroke, no mini-stroke, no neurological, they can determine that right away?

DEATON: The clinical exam and the MRI can very quickly determine if any brain tissue itself has been damaged.

BLITZER: It says also to help dissolve this clot. Her medical team began treating the secretary with blood thinners. Aspirin is a blood thinner, but there are other more sophisticated blood thinners. Presumably what would she be taking?

DEATON: Likely either Heparin and then often transition to Coumadin, although there's more modern agents.

BLITZER: She's secretary of state of the United States. How will this impact her in the short term?

DEATON: The short term --

BLITZER: If she were your patient, for example?

DEATON: It would not affect her function. She can travel. It really just affects sort of heavy physical activity. But otherwise, once your medication is regulated appropriately, you can go about all the normal activities of daily living.

BLITZER: Because some people have suggested to me, including our own Dr. Sanjay Gupta, who is a neurosurgeon, that if you have a concussion, you shouldn't be working that hard, you should let the brain rest. One thing you shouldn't do is testify before the House or the Senate on Benghazi.

DEATON: Well, I'd certainly defer to Dr. Gupta who is a neurosurgical expert on that issue like that.

BLITZER: When they say, her doctors, she will be released once the medication dose has been established, what does that mean?

DEATON: Well, in the instance of Coumadin, you give the medicine then you check certain coagulation perimeters in the blood. The dosage differs widely for different people. So it has to be tailored and the dose adjusted over a period of days and weeks to find out what the exact correct dosage is for that patient.

BLITZER: The other good part of the statement, and I'll read it to our viewers, in all other aspects of her recovery, the secretary is making excellent progress, and we are confident she will make a full recovery. She is in good spirits, engaging with her doctors and the staff and her family. DEATON: All of that indicates she didn't have any clinical change. Also reflected in how this was discovered. Different when it's discovered as a result of clinical symptoms versus an imaging test that show something without any clinical symptoms.

BLITZER: If you've had a history of deep vein thrombosis, blood clot, behind the knee for example, and now in the head, you just got to be careful down the road, right?

DEATON: Correct. I mean, there's some proclivity for venous thrombosis that has either been defined or undefined. She's certainly at higher risk just because of that history.

BLITZER: Dr. Deaton, you've been a big help to us and to all of our viewers watching. Thank you so much for coming in. We'll take a quick break. We'll continue to watch the breaking news involving the Secretary of State Hillary Clinton. Also, the U.S. is now going over that so-called fiscal cliff. Much more on that as well.