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STARTING POINT WITH SOLEDAD O'BRIEN

House Passes Senate Fiscal Cliff Bill; Interview with Congressman Steve Israel; House Does Not Vote on Resolution to Aid Victims of Hurricane Sandy

Aired January 2, 2013 - 07:00   ET

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


JOHN BERMAN, CNN ANCHOR: Our STARTING POINT, a late-night deal to avert the fiscal cliff. The House passes a bill with their backs up against the wall. Many lawmakers say they saw no choice.

(BEGIN VIDEO CLIP)

UNIDENTIFIED MAEL: If we don't pass this tonight, we are looking at $4 trillion tax increase and you're looking at financial chaos.

(END VIDEO CLIP)

BERMAN: The middle class spared from major tax hikes and spending cuts, but there's still the issue of the debt ceiling, and the president has a stern warning for Congress.

(BEGIN VIDEO CLIP)

BARACK OBAMA, PRESIDENT OF THE UNITED STATES: I had not have another debate with this Congress over whether or not they should pay the bills that they've already racked up.

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BERMAN: This morning, the political fallout. What this all means for you and what's next.

We have a packed two hours ahead. We're joined by New York Congressman Steve Israel, Tennessee Congresswoman Marsha Blackburn, Jen Psaki, who was President Obama's traveling press secretary for his reelection campaign, economist Diane Swonk as well. Also Connecticut attorney Irving Pinsky.

Morning, everyone. I'm John Berman.

BROOKE BALDWIN, CNN ANCHOR: Good morning, I'm Brooke Baldwin. Soledad is off today. Happy new year to you. Happy new year to you, Berman.

BERMAN: Happy new year.

BALDWIN: Good to see you. It is Wednesday, January 2, and STARTING POINT begins right now.

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BERMAN: Our STARTING POINT this morning: what on earth just happened? Yes, we are off the fiscal cliff, and financial markets, they are weigh up this morning, but it took one last night of fighting, frustrations, and a fractured late-night vote to make it all happen. We're talking complete mayhem here.

So let's recap. Late last night the House of Representatives passed the Senate's fiscal cliff bill. The final tally, 257-167, and while 151 Republicans voted no, it is worth noting its speaker, John Boehner, voted yes. So did Paul Ryan, by the way. Here is the deal that took over 500 days to seal. No tax hikes for couples earning less than $450,000 a year. Itemized deductions kept for couples make more than $300,000 a year. Unemployment benefits extended a year for 2 million Americans, and the alternative minimum tax permanently adjusted for inflation.

BALDWIN: Here is the thing, though, because what the deal doesn't actually address is federal spending. Drastic domestic and defense cuts have been put off for more than two months. Looking ahead that could get messy if this is an indication, think about that. Also there is the debt ceiling. This is the end of February. It is now at $16.4 trillion, and by the way, we just blew past that this week. The president drawing a line in the sand for that upcoming battle.

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BARACK OBAMA, PRESIDENT OF THE UNITED STATES: I will not have another debate with this Congress over whether or not they should pay the bills that they have already racked up. If Congress refuses to give the United States government the ability to pay these bills on time the consequences for the entire global economy would be catastrophic, far worse than the impact of the fiscal cliff.

(END VIDEO CLIP)

BALDWIN: So that was the president. Let's talk to Brianna Keilar. She covers the White House for us live this morning from Washington. Brianna, we ran through the biggies there in the bill. I want you to run through what's not included in this bill.

BRIANNA KEILAR, CNN WHITE HOUSE CORRESPONDENT: What you just mentioned, the spending cuts that are only in police for two months and then have to be dealt with, and also the fact that the debt ceiling is going to be hit. I mean, right now, the treasury is taking extraordinary measures so that it isn't. But ultimately, Congress will have to act in late February or early March. Those are the things that Congress has absolutely no choice. There is a deadline. They have to deal with it.

But Democrats and Republicans in the White House have also said they want to tackle long-term deficit reduction. That was the whole point of the fiscal cliff. That was supposed to be the incentive for tackling long-term deficit reduction. How are they going to do that? Entitlement reform, which obviously Republicans are bigger fans of, and then tax reform. So these are the things that Congress wants to tackle, kind of needs to tackle, but there is that hard and fast deadline. And it will be attached to spending cuts and debt ceiling sort of to give everything a deadline. This is big stuff. This gets to the fundamental disagreements between Democrats and Republicans, so hold on to your hats and glasses, folks. This will be a wild two months.

BALDWIN: Holding on, holding on. You mentioned between Democrats and Republicans, key splits in the ayes and nays. Run through the winners and losers, if you will, in this fiscal cliff fight.

KEILAR: There are obvious ones. Obviously if you a couple and you make $450,000 or more than $400,000 as an individual, you will see your taxes go up. If you itemize deductions and you are making more than $300,000 as a couple, $250,000 as an individual, you will see a cap phased in and you will see your taxes go up. So those are the obviously losers.

There are less obvious winners that maybe you didn't know about. Milk, sugar, and peanut producers, they have a tax cut. It has been preserved in this. The long-term unemployed will see benefits extended. That's obviously very important. And doctors who might have seen payments from Medicare reduced, they won't now.

And also the alternative minimum tax, Brooke. Having covered Washington, we're always talking about the AMT fix, they have to fix it, because it's not indexed for inflation. It now is permanently so it doesn't hit the middle class. That's important.

BALDWIN: Brianna Keilar, thank you very much.

BERMAN: It's amazing to think this fight might have been the easy one, and we have three more in the next two months. Let's talk about this fight. It was a doozy overnight. We want to know what's going on behind closed doors. So we'll bring in Chris Frates, a reporter from "The National Journal" following the action behind the scenes in our Washington bureau this morning. Chris, this was not a smooth ride. What did it take to get the deal done?

CHRIS FRATES, REPORTER, "NATIONAL JOURNAL": That's the understatement so far of the new year. What it took to get the deal done was a late tag-team effort between Senate Republican leader Mitch McConnell and Vice President Joe Biden. A story coming out online a little later this morning that will take readers behind all these scenes. Let me give you one example. The Senate Republican leader felt like Harry Reid's democratic counterpart wasn't negotiating in good faith, trying to Republicans to the edge of the cliff. So he called Vice President Joe Biden as an end around.

Mitch McConnell walked to the Senate cloak room sat down and said essentially, look, Joe, a lot of these guys are very smart people, but I don't see the trip wires like you do in this negotiation. I want to work with you. And Biden said "I'll call you back with an offer." And that's how this started where 30 hours later we had a deal that was done and just passed by the House last night.

BERMAN: Sitting in the phone booth in the cloak room. That's amazing.

For all of the talk on the vice president and Senate side, so much drama overnight on the House side. You had Speaker Boehner voting for the bill, House Majority Leader Eric Cantor voting against the bill. The House whip voting against the bill and Paul Ryan voting for the bill. This is a real split.

FRATES: It is. It shows the schism and it's a real good demonstration of why it was so difficult for Speaker Boehner to negotiate a bigger, grander deal with the president. He was unable to get his own deal through the House a few weeks ago, and even his negotiation deal that passed with overwhelming bipartisan support, 89 votes in the Senate, didn't get the majority of the Republicans in the House to sign on.

So what you are seeing is the difficulty played out for everyone to see of how difficult it is for Speaker Boehner to get these kinds of bills passed through the House.

BALDWIN: Chris, Quickly, given the schism that you outlined, this is the last day of the 112th Congress, and tomorrow is the big day for John Boehner. He is up for the speakership. How is it looking for them?

FRATES: I think it looks fine for him. A lot of grumbling among folks, but he allowed everyone to vote their conscious. No one got forced into voting for something they didn't want to. We avoided the fiscal cliff. And there is no challenger to Boehner at this point, and it doesn't seem like there will be a late comer.

BERMAN: Between Speaker Boehner, Mitch McConnell, and Joe Biden, there were a lot of political levers being pulled over the last six days. Chris Frates, "National Journal," thank you so much for joining this morning. Good stuff.

That's the politics. But what about the economics and the money? What does it mean for everyone?

BALDWIN: Money, money, money.

CHRISTINE ROMANS, CNN ANCHOR: Your tax rates are not going up unless you are rich. Your tax rates are not going up for 98 percent of Americans, but you paychecks will be smaller starting with your next paycheck. That's because the two-year-old payroll tax holiday is over. It expired. It's done. The rate you pay out of your paycheck to fund Social Security goes from 4.2 percent back up to 6.2 percent.

Here is how it affects your bottom line. If you're making $30,000, you will pay about $50 more a month in taxes -- excuse me. If you are earning $50,000, you will give $83 more a month to the taxes that fun Social Security. If you make $113,000 a year, you will pay an extra $189 a month in taxes. This was a measure meant to get the economy going, a stimulative measure. The treasury department picked up your tab and it cost us $120 billion a year. That was a perk to every working American that went away. So your taxes did not go up, but your paycheck will likely be smaller. BERMAN: It was a two-year thing. You got to enjoy it for two years, but now it's over for everyone. And even though the president is saying middle class taxes will not be raised, we are seeing taxes goes up.

ROMANS: They are. And, look, one thing so interesting about this. We shouldn't be messing with Social Security mechanisms that bothered people in both parties quite frankly. Now this is going away and you are back up to 6.2 percent. Plan accordingly, because you will have less money in your paycheck.

BALDWIN: ASAP. Christine Romans, thank you.

U.S. stock markets don't open for two hours, but stock futures are up sharply now that the House has passed this doozy, to quote you, the fiscal cliff legislation. What about reaction around the world when it comes to the markets? Let's go to Richard Quest, he is live in London. How are global investors reacting to this?

RICHARD QUEST, CNN INTERNATIONAL CORRESPONDENT: Let's take your theme of money and money makes the world go round. And on this side of the Atlantic, what you did on your side overnight has given a rollicking strong move to the markets. Looking at the major markets, the London FTSE is up two percent this morning. And in Frankfurt, the DAX is up 2.2 percent. All the major horses in Europe are up strongly and although -- I mean, it's hard. The critics and politicians and they all may say they didn't like what was done in the United States, but it has been the certainty that is now created the impetus -- the phrase you will hear excuse me. The phrase you will hear people use is "risk on." And that's what we're seeing in the markets today.

BALDWIN: We know the markets like certainty. You look ahead and looking down at the calendar of upcoming crises, the debt ceiling, sequestration, a couple issues coming up in the next couple of weeks here, do you anticipate a little bit of change and uncertainty globally?

QUEST: I have no doubt that as the twin peaks of debt ceiling and budget talks continue in the United States this spring, the enthusiasm will evaporate. Are you basically left on both sides of the Atlantic deep uncertainty, a Eurozone crisis that seemingly has no end, and U.S. budget deficit crisis that seemingly has no end. So on this new year, ladies and gentlemen, in New York, just celebrate the fact that you are up two percent on the European markets.

BALDWIN: OK, Richard Quest.

BERMAN: I'm celebrating the fact that nothing else this fiscal cliff, two of the best financial minds, Richard Quest and Christine Romans singing.

ROMANS: Dow futures up 200 points.

BERMAN: You will be singing more later.

Moving on to other news right now, we're going to talk about Secretary of State Clinton and her health, that close call. Doctors say the blood clot could have been fatal, caused a stroke or led to seizures or epilepsy. She's still in the hospital being treated with blood thinners. She should make a full recovery. Former President Bill Clinton and Daughter Chelsea seen visiting her at New York Presbyterian hospital yesterday.

BALDWIN: Also students from Connecticut Sandy Hook Elementary School return to class tomorrow this is for the very first time since the horrendous massacre three weeks ago. But the children won't be back at Sandy Hook in that building itself. They will attend an empty elementary school a couple of miles away in Newtown.

And how about this? Connecticut attorney Irving Pinsky who sought to sue the state of Connecticut for this $100 million over the shooting, has withdrawn the suit for now. Part of the reason he says was the outcry was too strong. Pinsky represents the parents of a six-year- old survivor. We'll have Mr. Pinsky here on the show in the next hour on STARTING POINT.

BERMAN: Yes, really controversial. A lot of people have a lot of questions for the attorney.

In Los Angeles, a photographer killed last night trying to get a shot of Justin Bieber. Police say the man snapped pictures of a sports car that he thought the pop-star was in. The photographer was struck and killed while crossing a freeway to return to his own car. In a statement, Justin Bieber said he was not in the sports car, but his thoughts and prayers with the family of the victim.

BALDWIN: There was a huge high-speed chase earlier in the year, and this city councilman was on the freeway, and he said, look, if this happens again this could really have a tragic ending, and sadly a photographer passed away.

Still ahead here on STARTING POINT, the fiscal cliff deal passes, but the bruising battle to get there, leaving some political scars, certainly. Also anger this morning from northeast lawmakers over Congress' refusal to help victims of hurricane Sandy. Coming up next we'll talk to New York Congressman Steve Israel about this.

BERMAN: Plus, guns and guards, a controversial plan started in one school system today. We'll talk about that. You're watching STARTING POINT.

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BERMAN: As we just told you, another last-minute vote last night. The House passed the Senate's fiscal cliff bill around 11:00, 85 Republicans voting for the measure. President Obama reacted moments after the vote, saying he was disappointed he wasn't more of a grand bargain.

(BEGIN VIDEO CLIP)

OBAMA: Unfortunately, there just wasn't enough support or time for that kind of large agreement in the lame duck session of Congress. And that failure comes with a cost, as the messy nature of the process over the last several weeks has made business more uncertain and consumers less confident. But we are continuing to chip away at this problem step by step.

(END VIDEO CLIP)

BERMAN: Congressman Steve Israel, a Democrat of New York, chair of the Democratic Congressional Campaign Committee, voted in favor of the bill. Congressman, I should say, it was quite a night on Capitol Hill. Your thoughts?

REP. STEVE ISRAEL, (D) NEW YORK: Well, look, I voted for it. Elements of the bill I did not like. But at the end of the day, House Democrats injected some adult supervision, some pragmatism and solutions. That's what the country wants. I voted for it because falling off the clip isn't an option. I wished the Republicans produced more votes. The best they could do is 85, 86 votes. They have the majority in the House of Representatives, and it was House Democrats who stopped us from going off the cliff. I hope we can find some way to work in a spirit of compromise, consensus, and cooperation to meet these challenges.

BERMAN: There has been plenty of criticism from the left. What didn't you like?

ISRAEL: I would have liked to see more deficit reduction. Democrats did join with Republicans on the budget control act and cut spending $1 trillion in the past so we got that locked in. We now have $640 billion in revenues. I wish there were more deficit reductions, but every time we tried to offer a compromise on broader deficit reductions to Republicans, even giving them some of the things they wanted, they would move further away from us up until the very last minute, literally up until 11:00 last night.

BALDWIN: Congressman, let me just jump in. One criticism from the left, just jumping on this, the president ran on the promise for the middle class with extending cuts for folks, extending cuts for folks making $250,000 or below. We know that number is right around the $400,000, $450,000 ballpark range. We know how it went in the Senate. Eight no votes before it went to the House, including Democrat Senator Tom Harkin, take a listen to what he said.

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SEN. THOMAS HARKIN, (D) IOWA: If we are going to have some kind of a deal, the deal must be one that really favors the middle class, the real middle class, those that are making $30,000, $50,000, $70,000 a year. That's the real middle class in America. And as I see this thing developing, quite frankly, as I've said before, no deal is better than a bad deal, and this looks like a very bad deal the way this is shaping up.

(END VIDEO CLIP)

BALDWIN: Congressman, do you agree? Was this, is this a bad deal? ISRAEL: I have a ton of admiration for Senator Harkin. But you know middle class is relative. And $250,000 may make you wealthy in some areas of the country. It does not necessarily make you wealthy in areas like New York and other high cost of living areas. I have been advocating a higher threshold, and I am pleased President Obama offered that compromise and please we were able to arrive there. It's not the perfect deal but a better deal and certainly a superior deal to going off the cliff, where is where we were headed.

BERMAN: We're off the cliff, but we have a whole bummer of series of dates ahead of us, between the debt ceiling vote, a sequester issue to deal with by March and fund the government. So there is really three votes ahead of us over the next two or three months, and a lot of people think the president may be in a worse, not better negotiating position here. He's shown Republicans he is willing to give at the end.

ISRAEL: Look, I think the American people have had it with games there, are challenges ahead of us, new votes. House Democrats showed an ability as I said before to inject pragmatism, and compromise, and solutions. If we can find Republicans to join with us and quit playing games with the debt ceiling and quit this roadrunner mentality of finding a cliff for every episode of Congress, I think we can get this done.

BALDWIN: I have to ask before we go, you represent part of New York, and congressman, we know what happened on the floor. We know the House will not be voting on Sandy aid, some $60 billion that the Senate passed last week. Take a listen to what happened on the floor.

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REP. CHARLIE RANGEL, (D) NEW YORK: The leadership just walked away without the courtesy of saying it didn't have time to deal with the millions of people whose lives have been affected. But maybe, Mr. Speaker, if you can remind Americans just watching that maybe they should call and ask the Congress and ask the speaker, please reconsider.

REP. JERROLD NADLER, (D) NEW YORK: To ignore the flight of millions of American citizens, unprecedented, disgusting, unworthy of the leadership of this House. They should reconsider or hang their heads in shame.

REP. PETER KING, (R) NEW YORK: Everybody played by the rules, except tonight when the rug was pulled out from under us, absolutely indefensible. We have a moral obligation to hold this vote.

(END VIDEO CLIP)

BALDWIN: Peter King slamming his fist. Congressman Israel, are you angry as well?

ISRAEL: Absolutely. I hope I don't get Peter King in trouble, but I agree with him. Just when we avoided one cliff, the House Republicans threw us over another. We rushed to aid to Kabul and Baghdad when they had damage, but when it comes to aid to New York and New Jersey, the House Republican leadership decided we weren't worth it. It is indefensible.

BERMAN: Congressman Steve Israel here from New York, thank you for joining us this morning. It was a crazy night. Glad you made it to the other side.

ISRAEL: Happy New Year.

BERMAN: We're going to get the other side, what it was like to be in the room with the Republicans voting on all this. Republican reaction from Congressman Marsha Blackburn of Tennessee.

BALDWIN: Also ahead here this morning, 20 minutes past the hour, with the fiscal cliff deal in place, what about you? What about your 401(k)? What could happen on Wall Street? We'll talk with that ahead.

BERMAN: When kids arrive back in school in one city this morning, they will be greeted by a new site armed guards. "The new normal" it's being called. That's next. You're watching STARTING POINT.

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ROMANS: Good morning. I'm Christine Romans. U.S. stock futures up very sharply, and Dow futures are right now up 175 points. That suggests a big rally when markets open here in the U.S. European, Asian markets also rallying, a pretty good way to start 2013. The S&P 500 gained 13.5 percent. That's the best indicator of the stocks part of your 401(k). On the heels of the fiscal cliff deal, a big rally expected at the opening bell in the U.S.

The Congressional Budget Office has scored the bill. It says the fiscal cliff deal will decrease - sorry, increase deficits by nearly $4 trillion over the next decade. The bulk comes from extending Bush era tax cuts for almost every American, 98 percent of Americans. This is relative to where deficits would be if we fell completely off the fiscal cliff if Congress had done nothing, let the Bush tax cuts expire, allowed big spending cuts to come into effect. Under this scenario a $2.88 trillion would have been added to the deficit over 10 years. So falling off the fiscal cliff would have helped our debt position more but hurt the economy in the near term. Most economists don't expect to us fall off the fiscal cliff. Many expected Congress to extend the Bush tax cuts and cancel or weaken the fiscal cliff. Compared to that scenario this bill reduces deficits by about $650 billion according to analysis from the Committee for a Responsible Federal Budget.

BERMAN: Good news, bad news, maybe a little good news.

(LAUGHTER)

ROMANS: You know when we're doing scores of bills from the CBO that we live in budget hell.

BERMAN: Thank you very much, Christine Romans. Ahead on STARTING POINT, check this out. A man sleds into a freezing lake.

BALDWIN: Yikes!

BERMAN: Yikes is right. His rescuers fall through the ice after him. Coming up, meet the man who was able to help get him out. You're watching STARTING POINT.

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