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Political Fallout on Homeland Security Announcement Favors Bush

Aired June 7, 2002 - 16:00   ET

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


THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
JUDY WOODRUFF, CNN ANCHOR: I'm Judy Woodruff in Washington. President Bush is out selling his new plan to shake up homeland security. But, will turf wars get in his way?

JONATHAN KARL, CNN CONGRESSIONAL CORRESPONDENT: I'm Jonathan Karl on Capitol Hill. I'll look at the obstacles ahead for the president's plan as lawmakers begin scrambling to protect their power.

CANDY CROWLEY, CNN SR. POLITICAL CORRESPONDENT: I'm Candy Crowley in Washington. Exactly one year after President Bush signed tax cuts into law, I will answer the question: who cares?

WILLIAM SCHNEIDER, CNN SR. POLITICAL ANALYST: I'm Bill Schneider in Washington. Is timing really everything? Certainly is in the political play of the week.

WOODRUFF: Thank you for joining us. President Bush says he is confident that his plan to create a new cabinet department to fight the war on terrorism will become a reality. To try to make sure of that, Mr. Bush altered the script of his appearance today before Iowa pork producers, originally scheduled to mark one year since he signed tax cuts into law.

Following up on his speech to the nation last night, the president said he will work to persuade the American people and any reluctant officials in Washington that a new homeland security agency would help keep the country safe.

(BEGIN VIDEO CLIP)

GEORGE W. BUSH, PRESIDENT OF THE UNITED STATES: This is going to be a tough battle, because we're going to be stepping on some people's toes. I understand that. You see, when you take power away from one person in Washington, it tends to make them nervous. So we're just going to have to keep the pressure on the people in the United States Congress to do the right thing. I believe that it's going to happen.

(END VIDEO CLIP)

WOODRUFF: Our John King is traveling with the president. John, given the criticism that this was put together very quickly, wasn't as well thought out as it might have been, how tough a sell is this for the president?

JOHN KING, CNN SR. WHITE HOUSE CORRESPONDENT: Well, the president himself compared it to stepping on toes, Judy, in a speech here at the state fair grounds in Iowa. Mr. Bush taking to the road now. The assumption is at the White House he's a very popular president, and that Congress will not say no to a president who says this new department is a critical weapon now in preventing future terrorist attacks.

But the president, here in Iowa at that early-morning meeting earlier today at the White House, making the case. They believe they have the support of the key Democrats right now. They do expect some turf battles and they do expect to have to compromise.

Make no mistake about it, they don't expect to get everything. But they do expect to largely win the day and they do expect there to be a new department of homeland security come January 1.

WOODRUFF: And, John, what about the criticism that the plan does not address the intelligence lapses between the CIA and the FBI?

KING: Well, the president himself felt the need to address that this morning. He was asked that very question and he acknowledged the point. The new department of homeland security would not have any dramatic effect on either the FBI or the CIA. But the president said that reforms are already under way at both of those agencies.

He says the FBI and the CIA, in addition to internal reforms in each agency, now talk to each other, in the president's words, "like never before." And the president himself said we are learning the lessons of the mistakes made prior to September 11th.

So as he sells them the department, the president also trying to sell the American people and the Congress on the fact that, at least in his view, those reforms are being made at both the FBI and the CIA.

WOODRUFF: And, John, finally, what about the role of Homeland Security Director Tom Ridge in all this? Is he expected to head up the new department if it comes into being?

KING: We are told he is at least, at this moment, the president's all but certain choice for secretary if the new department is created. He also will be the lead lobbyist, if you will, making the case on Capitol Hill. That represents a bit of a switch.

Remember, the administration has fought Congress, especially the Senate appropriations chairman. Senator Robert Byrd of West Virginia saying Governor Ridge right now is an adviser to the president. They have refused to have him testify in open hearings. He now will testify.

The White House believes it is confident it can strike an agreement with Congress in which Governor Ridge will testify about the new department, about how it would be put together, about what the mission would be, but not have to testify about any private advice he has given the president over the past eight months. WOODRUFF: All right, John King in Iowa. Thanks, John.

KING: Thank you.

WOODRUFF: While earlier today, President Bush issued a face-to- face warning to members of Congress to avoid turf wars that might sink his plan it restructure homeland security. Our congressional correspondent Jonathan Karl has more on one front in those wars: the battle ahead on the Hill.

(BEGIN VIDEOTAPE)

KARL: The president began his lobbying campaign by rallying the troops, the Democrats and Republicans he hopes will guide his proposal through the jurisdictional minefield on Capitol Hill. Despite the early praise lavished on the plan, getting it passed this year will take something of a legislative miracle.

SEN. JOE LIEBERMAN (D), CONNECTICUT: We're not kidding ourselves. There's going to be some opposition and it probably will be bureaucratic turf protection. There will be a lot of arguments about why we ought not to do this.

But I think we've got to try to preserve the feelings of anger and purpose that we had in the days immediately after September 11th today, to act together decisively so that we prevent another September 11th attack from happening.

KARL: Lieberman would like to see the bill crafted in his committee, government affairs. But he may have to fend off fellow Democrat Pat Leahy, whose judiciary committee has authority over some of the biggest pieces of the proposed new department. The commerce committee also expects a major piece of the action.

SEN. TRENT LOTT (R-MS), MINORITY LEADER: We've got to decide what committees will have jurisdiction. We may even have to look at restructuring some committees. But my answer to that is, so what? This is a very important issue.

KARL: It's a developing turf war that mirrors the expected battles inside the administration, where departments are supposed to see authority and budgets to the newly created department of homeland defense. Democrat Jane Harman was also at the meeting with the president.

REP. JANE HARMAN (D-CA), INTELLIGENCE COMMITTEE: He will have to exert personal leadership to overcome the turf resistance in his administration. And he can help up here too, to make sure that those who may have to give up some power and some budget for the greater effort are willing to that.

I would just like to sign up as one member and say that I am.

(END VIDEOTAPE)

KARL: Yesterday, Speaker of the House Dennis Hastert had a discussion with Dick Gephardt, the Democratic leader in the House, about one possible option for doing away with this turf problem. That's creating one brand new committee whose sole purpose would be to craft this legislation.

And, Judy, meanwhile, David Obey, the top Democrat on the House appropriations committee, continues today to carve out a role for himself as the No. 1 congressional opponent to this plan. He has put out a several-page press release outlining what he calls problems with the president's proposal, especially things that are left out, such as the U.S. Marshal service, the food inspection service, the postal inspection service and the EPA's emergency response team.

And there are many, many more that he says were left out of the proposal, that he says should be in the proposal. So we'll look for him in the days ahead to really emerge as the top critic of this plan.

WOODRUFF: Jon Karl at the Capitol. In fact, we're going to be talking with Congressman Obey in the next segment. Thank you, Jon.

While this new cabinet department proposed by the president would focus on homeland security, it would by design have other federal matters to contend with as well. CNN's Jeanne Meserve looks at how that reconfigured web of agencies just might work.

(BEGIN VIDEOTAPE)

JEANNE MESERVE, CNN CORRESPONDENT (voice-over): Many experts think it is important and useful for the president to establish clear responsibility within the government for homeland security.

BUSH: Employees of this new agency will come to work every morning knowing their most important job is to protect their fellow citizens.

MESERVE: On the face of it, consolidating many of the agencies involved in homeland security under one umbrella makes sense. But experts say it will not necessarily mean the country is better protected.

TIMOTHY CLARK, EDITOR, "GOVERNMENT EXECUTIVE" MAGAZINE: If you shuffle a box, does it mean that the individual boxes will work better? Not really. Does it mean that there will be efficiencies? Not necessarily.

MESERVE: Some worry that the new department will be too big to manage, incorporating agencies with widely different missions, like border control and first responder training, developing pharmaceuticals and even guarding the president.

REP. DAVID OBEY (D), WISCONSIN: As I read this, new homeland security director is supposed to stop Mr. bin Laden, but he's also supposed to be in charge of boll weevil eradication.

MESERVE: Many of the agencies placed in the new department do not deal exclusively with homeland security. What happens to their other missions? The Coast Guard's role, for instance, in protecting fisheries and conducting search an rescue operations?

MICHAEL O'HANLON, BROOKINGS INSTITUTION: Each of these agencies does many things and not all of them have do with homeland security per se. You don't want to lose those other functions.

(END VIDEOTAPE)

MESERVE: Other people have the opposite worry that the new department may not be big enough. There is particular concern about its intelligence division, which will not have any ability to gather information on its own, only synthesize what it gets from the CIA, FBI and other agencies of government.

Some say that is not enough to address the issue of information sharing, which played such a part in the most profound breach of homeland security this country has ever seen, September 11th -- Judy.

WOODRUFF: All right, Jeanne Meserve, thanks very much.

Up next, we will talk about the benefits and the drawbacks of restructuring homeland security with Congressman David Obey and the White House point man on Capitol Hill, Nick Calio.

Also ahead, the inside story on the seesaw of power between Karl Rove and Karen Hughes. And White House fears that Hughes is throwing off a delicate balance.

Plus, another headache for Massachusetts gubernatorial candidate, Mitt Romney. This is INSIDE POLITICS.

(COMMERCIAL BREAK)

WOODRUFF: "On the Record" this Friday, two guests with two different views of the president's plan for a department of homeland security. In a moment I'll speak with Nick Calio, the White House director of legislative affairs.

First, my earlier conversation with Congressman David Obey of Wisconsin. He's ranking Democrat on the appropriations committee. He points out that under the plan, the number of agencies dealing with homeland security grows from 133 to 141.

(BEGIN VIDEOTAPE)

OBEY: I am certainly for reorganization and I applaud the administration for trying. I think that there are aspects of this plan that are very confusing. They're very haphazard. And I think some of them are downright dangerous. I think two are especially dangerous.

WOODRUFF: Are you saying you're going to oppose this, whatever legislation comes forward, to implement this?

OBEY: What I'm saying is we are going to need to improve this drastically before it becomes law. Let me give you two examples. Right now, the premier agency in the world to fight infectious diseases is the National Institutes of Health and within that, the National Institute of Infectious Diseases.

Talk to Tony Fauci about this and he'll explain it to you. Under this proposal, they're going to split off an effort against diseases which are caused by terrorism. That, in essence, is like having two fire departments in your community, one for fires caused by arsonists and another for fires caused by natural causes.

It is going to be substantially disruptive of our scientific efforts to control diseases and I think will make it harder for us to deal with any terrorist induced diseases.

WOODRUFF: Let me ask you...

OBEY: It is absolutely crazy to split the best research operation in the world into two parallel functions.

WOODRUFF: Let me ask you about what a number of members of Congress have been saying, including Democrats. Senator Lieberman, Congresswoman Ellen Tauscher. They're saying this has got to be dealt with quickly. Some are saying no hearings, move it right to the floor.

OBEY: Well, that's silly. I mean, the Congress is supposed to be the greatest deliberative body in the world. Yes, we need to get the job done. But you're not going to help the country by doing something that is not well thought out. We are supposed to not leave our thinking caps behind us when we sit down and deal with these issues.

I want to give you another concern of mine. The Central Intelligence Agency is supposed to be the central intelligence agency. Under this plan, the Central Intelligence Agency becomes just another peripheral agency. There now becomes a third agency above the CIA and the FBI, through which information will have to funnel.

That means you have added another layer of bureaucracy. But you have done nothing to require the FBI and the CIA to actually work more closely together. And this new filtering agency is not have to access, as I understand it, to the agents in the field to whom they have to have access if they're going to be able to adequately analyze that intelligence.

So should we have reorganization? Obviously we should. We have been calling for it in both parties. But that doesn't mean -- that doesn't mean that we ought to take the first product, put together by four people, as "The Washington Post" says, without consulting the people in the government who know the most about the issues and who can keep us from making some very dumb mistakes.

(END VIDEOTAPE)

WOODRUFF: Congressman David Obey. Now Nick Calio. He will lead the White House charge to push this new homeland security department through the Congress. He joins me from the White House.

Mr. Calio, you heard Congressman say this is haphazard, it's confusing and parts of it are downright dangerous.

NICK CALIO, BUSH LEGISLATIVE AFFAIRS DIRECTOR: Quite obviously, Judy, we don't agree with Congressman Obey. We think we can probably meet with him and clarify his thinking.

First of all, this is the product of very long thinking on the part of the administration. Going back to last May, President Bush asked Vice President Cheney to form a task force to examine homeland defenses. He then created, after September 11th, the office of homeland security here in a meeting with members of both parties on consecutive days, all of the chairman and ranking members of the major committees of jurisdiction, with something, some jurisdiction over homeland security.

He indicated that our office was the first word and not the last word. We had an immediate task that we had to handle. And then we would move on and we'd talk to them. We've had an ongoing dialogue now for eight months, not only with members of Congress who are experts in this area, but also within our own executive branch of the government.

And we concluded that because of that, we needed to create an office, a cabinet office of homeland security.

WOODRUFF: Well, if that's the case, why were so many members of Congress, even Republicans, taken off guard by this?

CALIO: I think if you listen to the criticisms that Congressman Obey offered, it's an object example of why we decided we had to do this quietly and present it to people as a whole piece. This is the type of proposal, it's such a massive restructuring, necessary as it is, that will get nibbled to death by people who have jurisdictional concerns on Capitol Hill and within the executive branch bureaucracy.

WOODRUFF: But if it is such a massive restructuring, why does the president want to get it done so quickly? I mean, as you know, there are some saying it needs to move right to the floor.

CALIO: I applaud their notion that it needs to move quickly, as does the president. The president does think it needs to be done quickly. We can't really wait. There are threats out there every day. We are dealing with them the best way we can.

But when you have a hundred different entities in the executive branch of government, and 88 different committees an subcommittees on Capitol Hill, there are problems. There are information gaps, there's coordination problems.

(CROSSTALK)

CALIO: You know, if I may, Judy, going back to October when they found anthrax in the office building, we had to quickly convene a conference call. And on that conference call, there were probably I think somewhere in the range from 20 to 22 different entities from the executive branch alone trying to deal with the problem of this newly found anthrax in the congressional office building. There was not a single person on that phone, not Governor Ridge, certainly not myself, who had command and control of the situation to say OK, X, you do Y so we can start to solve this problem. That problem is endemic to what we are trying to fix here.

WOODRUFF: And just to pick one example, Congressman Obey is pointing out that, for example, some of the agencies that deal with diseases, preventing disease, would be split off according to what causes the disease. He was basically saying it doesn't make any sense to do some of these things.

CALIO: Well, again, I think we will talk to Congressman Obey about that. Certain parts are split off. Other parts are not. For the most part, they're not.

Take the customs service as an example. The customs service collects revenues and tries to enhance trade and the free movement of trade. It also tries to stop things from coming in. Those are two different functions, yet they exist over at the Treasury Department, where the main purpose is fiscal policy.

We have a number of agencies within the government which have some purpose for homeland security but serve other purposes as well. Those purposes will continue even if though move into the homeland security department.

WOODRUFF: And you think it's realistic to get this done this year?

CALIO: I do and I'll tell you why. We've talked about it at great length. It is the magnitude of the challenge facing the government to help make America safer for the American people that we think will drive this. This is something that has been long overdue.

The fact that it's going to be difficult, the fact that people have turf problems or jurisdictional concerns, doesn't mean you shouldn't go ahead and do it and do it now.

WOODRUFF: All right, Nick Calio at the White House. We thank you very much.

CALIO: Thank you.

WOODRUFF: A verdict in the Michael Skakel murder trial and a disturbing discovery in the Chandra Levy case next, in the "Newscycle."

Also the president, his plan and the so-called turf wars. Ahead, Bay Buchanan and Donna Brazile have their say when we return.

(COMMERCIAL BREAK)

WOODRUFF: Checking the stories in our "Newscycle," Kennedy family cousin Michael Skakel was convicted of murder today by a Connecticut jury. Skakel could face a sentence of up to life in prison for the murder of 15-year-old Martha Moxley, who was bludgeoned to death with a golf club in 1975.

D.C. police say they will return to the area where Chandra Levy's remains were found following word that private investigators hired by the Levy family discovered a human bone near the site. D.C. police officially ended their search of the area more than a week ago.

President Bush travelled to Iowa today to mark the first anniversary of his 10-year tax cut package. Mr. Bush also told his audience that his plan to create a new department of homeland security is the best way to defend the country against acts of terrorism. With us now, former Gore campaign manager Donna Brazile and Bay Buchanan, president of American Cause.

Bay, the president says that this is the way to go, that the administration has been working on it for months. And, is it a good idea?

BAY BUCHANAN, AMERICAN CAUSE: I think it's an excellent first step. I think it's very wise, and he's been careful about this. And I think he was real hesitant at first to go this route. But last month or so he came across some turf battles and he realized it all had to come under one person. And that person can make these decisions.

And I think he was very wise not to talk to Congress first, but to go right to the American people and get their support to put pressure on Congress. I that's the only way this is every going to go through.

DONNA BRAZILE, FMR. GORE CAMPAIGN MANAGER: Well, first of all, Judy, and with all due respect to you, Bay, this is the greatest reversal since "read my lips." This president has been opposed to creating this cabinet position now for eight months.

Ari Fleischer has been out time and time again telling the press that we didn't need a cabinet-level position to protect our homeland. In fact, that Ridge had all the power he needed. He could just walk down the hall.

And now in a great reversal, the administration has decided to come on board and support parts of a plan that Senator Lieberman has put forward. And just two weeks ago Senator Lieberman and the Senate governmental affairs committee have passed a bill along party lines, 9 to 7, to create such a cabinet-level position.

And where was George? Where was the Bush administration on that important day?

BUCHANAN: You know, I would think that you would want to praise George Bush. He was opposed. He's the first to admit he was opposed. But he kept an open mind and he realized that, in order to protect this country, something else had to be done.

So he was going to have to move away, keep an open mind about it, solve the facts. And a month ago he decided this is the best way to go. Now, let me ask you. Do you believe that the Democrats on the Hill will now, rather than nitpick and worry about their little turf, will come and totally support...

BRAZILE: In fact, Congressman Gephardt today all but said that the Democrats should stay in session. I hope the Republicans will too. It wouldn't be fun without the Republicans here. And this summer, he believes that they should begin the hearings right away and pass this bill before September 11. Look, Democrats have been on this bill since day one.

BUCHANAN: And they should do one more thing. Congress wants to talk about the president not supporting it, and this is something that should have been done. They should take it one step further, which they have authority to do, and include the FBI and the CIA. Let's move and make this so it's all one big happy family, working together to protect America.

BRAZILE: Well, there's a reform bill now in the Senate that some Republican is holding up that would reform the FBI and make the FBI a better intelligence-gathering agency.

WOODRUFF: Let me ask you about this whole question of whether this completely takes the focus now off of the investigation into what happened before 9/11, what information did the government have, what might they have acted on.

I want to quote something today from "The Detroit Free Press" in its editorial: "This restructuring should not deter Congress from continuing its pursuit of information about what went wrong before September 11. If anything, the information from the hearings would help the new agency avoid such mistakes."

BRAZILE: I totally agree.

We have got to know what the problem is, Judy, in order to fix it. You just can't shuffle some boxes or shuffle some agencies and create one super agency and say, "OK, we're done." No, I believe that Congress should continue their investigation. And I also believe that we need a blue-ribbon independent commission to investigate it as well.

BUCHANAN: I believe Congress has a responsibility, an oversight responsibility to investigate this. And I think the person who is going to head this homeland security office -- agency up will want that, because, as he's redoing things and looking at things, he'll be getting more and more information that I believe would definitely be helpful to him to do it in the right way.

WOODRUFF: But should the hearings continue?

BUCHANAN: I think the hearings definitely should continue...

BRAZILE: Absolutely.

BUCHANAN: ... and get all the facts.

But this second committee -- Congress has a responsibility for oversight. Let's not then throw it to someone else to do it as well. We only need one. We need Congress to do a good job, both sides working together, and let's get to the bottom of this.

BRAZILE: We need to take it out of the political theater and give it to a blue-ribbon commission, nonpartisan, so that we can get all the facts out, and all of this CYA, cover your agency, can disappear, so we can get down to the facts.

BUCHANAN: Nothing is partisan about terrorist attacks.

The facts need to become -- that's Congress' job. And if they can't do it, they should go home and let someone else come back here and do it.

BRAZILE: I believe a couple of them should go home, by the way.

(LAUGHTER)

WOODRUFF: We're for the facts here. That's for sure.

BRAZILE: Absolutely.

WOODRUFF: Donna Brazile and Bay Buchanan, thank you both.

BUCHANAN: You're welcome.

BRAZILE: Thank you.

WOODRUFF: Good to see you. Have a great weekend.

BUCHANAN: Thank you. Same to you.

BRAZILE: I'll see you.

WOODRUFF: And we'll get the "Inside Buzz" about the power dynamic within the Bush White House and who's wringing his hands over Karen Hughes' planned departure.

(COMMERCIAL BREAK)

WOODRUFF: Now to President Bush and his celebration of the tax cuts he signed into law a year ago: As we reported earlier, that celebration was overshadowed, to a large degree, when Mr. Bush promoted his new plan to restructure homeland security.

Question: Is there a message there about the political importance of tax cuts?

Here's our senior political correspondent, Candy Crowley.

(BEGIN VIDEOTAPE)

CANDY CROWLEY, CNN SR. POLITICAL CORRESPONDENT (voice-over): He campaigned on it.

UNIDENTIFIED MALE: I am a retired person, so, you know, I am happy to have received that.

CROWLEY: He proposed it.

UNIDENTIFIED FEMALE: I think it could have been used for better uses, such as education.

CROWLEY: He delivered it.

BUSH: It was one year ago today I had the honor of signing the tax relief bill that Chairman Chuck Grassley -- then Chairman Grassley shepherded, helped shepherd through the United States Senate. It was the right public policy at the right time for the United States of America.

CROWLEY: In Iowa and on Capitol Hill, Republicans noted the one- year anniversary of the Bush tax cut.

SEN. TRENT LOTT (R-MS), MINORITY LEADER: This is an anniversary that I'm delighted to celebrate.

CROWLEY: But, honestly, out there, most people have moved on.

UNIDENTIFIED MALE: I think I would judge the president more on his record, how he is dealing with homeland security and how the economy is going.

CROWLEY: A late May poll shows Americans put taxes 10th when asked to rank 14 issues in order of their importance to this year's elections. But where it matters most, the tax cut matters. It's a base thing.

STEPHEN MOORE, CLUB FOR GROWTH: The fact that Bush can always go to these conservative activists and say, "I cut your taxes; I overcame the opposition of Tom Daschle and Dick Gephardt to get taxes lower," is a very important political development for George W. Bush. And I think it will pay huge dividends for him as he runs for reelection in 2004.

CROWLEY: The problem for Democrats is that this tax cut thing has been Jell-O as a political issue. It hasn't stuck to the wall. Ask the House Democratic leader if the Bush tax cut is an issue in this year's elections.

REP. RICHARD GEPHARDT (D-MO), MINORITY LEADER: I don't know. It should. And we will try to get that point across.

CROWLEY: For the president, this day is less about celebrating than reminding, because when he pushed through tax cuts, George Bush also built himself room to maneuver, a nice little political safety net.

MOORE: He can always fall back with conservatives to say: "I am cutting taxes. I am not raising them. Even though maybe you are unhappy about what's happening with spending or some of the protectionist measures, you can always count on me to cut taxes." And, for conservatives, that really is the sort of crown jewel of the agenda.

(END VIDEOTAPE)

CROWLEY: Delivering tax cuts is not just a matter of policy, but of personal history for George W. Bush. When his father broke his no- new-taxes pledge, conservatives left in droves. As you do not need to remind the second President Bush, the first President Bush served one term -- Judy.

WOODRUFF: Candy Crowley, thanks very much. Appreciate it.

Well, while Republicans celebrate or recognize the Bush tax cut, the federal deficit is approaching $200 billion and the once-lauded surplus has vanished.

I asked White House Budget Director Mitch Daniels if there is a connection between the two.

(BEGIN VIDEOTAPE)

MITCH DANIELS, WHITE HOUSE BUDGET DIRECTOR: Well, the deficit we're facing now, which historically is very small compared to those we used to know, would be much worse without the tax cut, it's clear. No one knew when the president was sworn into office that a recession was already underway or in prospect. And looking through the rear- view mirror, it's a darn good thing that the tax cut happened as it did, when it did. All economists agree today that it had a very material, positive effect on making the recession so short and so shallow.

WOODRUFF: So no connection between the tax cut and the size of the deficit?

DANIELS: Very, very little. We're going to be down in revenue versus what we were told to expect when the president took office about $330 billion this year. Over three-fourths of it is related to the economy, and also to one other important factor. We now know that much of the revenue that was flooding the federal government in the last years before the president came to office was due to a booming stock market. And until we have a booming market again, we will not see tax revenues coming in at the levels we temporarily knew, even though the economy recovers.

WOODRUFF: Well, even after you count, Mitch Daniels, the money spent on fighting terrorism, the money spent on defense, it is still the case that the tax cut decreased the pool of money available for domestic programs. And I just want to cite a few things. The administration proposing reductions of over $1 billion in each of these areas next year: fighting violent crime, education, the Centers for Disease Control, the environment. Isn't there a connection here?

DANIELS: First of all, Judy, we'd be in deficit if there'd never been a tax cut. We'd probably be in much worse deficit because the recession would probably still be ongoing. So it was clearly the recession and the cost of the war and recovery that put us slightly in the red.

Secondly, in every one of the spending categories you just mentioned, remember the binge that was going on before the president got here; also the healthy increases of last year. In every area you just mentioned, we're spending vastly more money at the president's requested level than just two years ago.

(END VIDEOTAPE)

WOODRUFF: Mitch Daniels, who talked to us yesterday.

A footnote now on tax cut politics in Iowa today: President Bush thanked Senator Tom Harkin and Congressman Leonard Boswell for showing up for his remarks at the Pork Expo. But the White House did not invite the Iowa Democrats to attend. And Harkin and Boswell are crying foul. Harkin's aides questioned how the president could refuse to invite members of the Iowa delegation to an official event in their home state paid for with tax money. But White House officials say they only invited members of Congress who supported the president's tax relief plan.

Coming up next: journalist Ron Suskind about his article that has put some Republicans into shock.

(COMMERCIAL BREAK)

WOODRUFF: Now a rare and revealing look at the balance of power within the Bush White House and how that balance apparently is being thrown off by Karen Hughes' decision to return to Texas.

Journalist Ron Suskind writes about Hughes' decision and the fallout in the July issue of "Esquire."

Ron Suskind, the White House is all over itself in the last day or so saying that this article is just not so. And yet, let me -- before I ask you about that, let me quote something that you say.

You quote Andy Card as saying: "That's what I've been doing from the start of this administration: standing on the middle of the seesaw, with Karen on one side, Karl on the other, trying to keep it in balance. One of them just jumped off."

How did you get Andy Card to say this?

RON SUSKIND, "ESQUIRE": Well, I didn't have to do much, quite frankly. Andy said this and then he kind of threw himself on the couch. It was really quite dramatic.

I talked to Andy just a few days after Karen Hughes publicly announced that she is going back to Texas. Andy is having to deal with really the aftermath the after-Hughes' period, the aftermath of that. And he was really in quite a state of peak as to how that might unfold, a real sense of concern as to whether the president can be well served without Karen Hughes there. In some ways, she has helped the president be the president.

WOODRUFF: Well, he, today and yesterday, is saying, among other things -- he did one interview where he said, "They" -- meaning the story -- "claimed I did things I didn't do. I view this story as more fiction than nonfiction."

SUSKIND: I think that Andy is under a lot of pressure, as people in the White House are, to do as much as they can to distance themselves from the story. Everybody knows what they said. In some ways, this is not very complicated, Judy. I sit there with a pad and they talk to me. I write it down. And I go put it in the story.

Here is a case, though, where clearly the president is displeased. And people are not exactly sure where to run at this point. So, they're attempting to say it didn't happen, quotes are not true. But here's a case where Andy, and I'm sure everyone else, can only go so far. Andy will not and has not said what he said is not true and that he did not say it. He's not gone that far.

WOODRUFF: Well, for example, they make a big deal out of the fact -- they say that you talk about the rug in his office was blue. And they say it's really tan.

SUSKIND: Right. Right.

Well, the rug is actually an interesting subtext. I happen to be colorblind. And, so, when I went to "Esquire" fact-checking department, I said, "Make sure you check the rugs, the color of the walls, even the fabric on the chairs," which they did, through Karen Hughes' office, all the way down to the fabric of the chairs and the color of that rug.

One of the things I say to people is that, it was an 8,000-word story, and the thing that they're focusing on is the color of Andy Card's rug instead of the fact that the chief of staff of the White House is saying that this president cannot be served as he needs to be at a moment of genuine peril. That's a serious issue. And the serious issues are the ones that they seem to not want to talk about.

WOODRUFF: You were telling me just before the interview that you think that Card, in effect, is sending a signal about Karl Rove here. And what is that?

SUSKIND: Much of the second of the two long interviews I had with Andy Card, the second one right after Karen announced her departure, was really about the dynamic of what to do about Karl.

As he said, Karen has been the one to counterweight Karl in almost every political and strategic issue. At one point I said to him, in some ways -- Andy put it this way. He said: "Karl walks in with a broadsword, a partisan sword, a sharp sword in almost every meeting. And Karen is able to beat that into a plowshare."

Karen is not going to be there to do that anymore. And that's a serious political issue for the president. Without Karen there as the most trusted adviser to the president, which is what she has been, there's going to be nobody, really, to match Karl. Andy talked with great specificity about lifting people to try to challenge Karl as best he can, because Karl Rove clearly speaks for the partisan right of the Republican Party. And if the president's going to stay in that middle, where good governing happens and often good electoral outcomes, somehow Karl will have to be contained. That's Andy's view. And Andy essentially says, "Come to me if you're going to need to basically work against Karl."

WOODRUFF: It's a fascinating article in this month's "Esquire." Ron Suskind, we thank you very much for joining us.

SUSKIND: Thank you, Judy.

WOODRUFF: Appreciate it.

WOODRUFF: The shift in strategy for preventing terrorism -- up next: our Jeff Greenfield on why the president and his homeland security team decided to create a new office in the Cabinet.

(COMMERCIAL BREAK)

WOODRUFF: Senior analyst Jeff Greenfield is with me now.

All right, Jeff, if you put the president's decision last night through a political prism, what do you see, besides the obvious attempt here to trump the hearings about intelligence failures?

JEFF GREENFIELD, CNN SR. ANALYST: You know, Judy, I always think it is useful to go back to a president's formative political experience.

And, for George W. Bush, I think it was watching his father's presidency crater under the weight of two critical missteps: first, the posture of inaction in the face of a dilemma -- back then, it was the economy -- and second, as Candy Crowley mentioned earlier, alienating his political base.

And I think we have seen throughout this administration constant attention to those two themes. But, in this case, the need, or the perceived need to take some action, I think may not be all that appealing to his conservative base.

WOODRUFF: You mean because it's another government program?

GREENFIELD: Yes.

I think, by nature, conservatives are very dubious about creating a new government agency to deal with problems. One of the ironies here is that the first public official to use the old metaphor about rearranging the deck chairs on the Titanic was Ted Kennedy, who is one of the Senate's liberal stalwarts. But I think what happened is, the events of the last couple of weeks, in a sense, forced the president and the White House away from their original plan about all this.

WOODRUFF: So, how did their approach change, Jeff, and why?

GREENFIELD: Well, if you remember, the original notion was to go on the offensive and challenge anyone raising questions about what or wasn't known about September 11. Vice President Cheney used some very tough language back then. And first lady Laura Bush was even drawn into this while in Europe, defending the president against any notion that he was somehow knowledgeable about what might happen before it did.

But I think when the Phoenix memo and the letter from Rowley surfaced, the whole climate changed dramatically. And I think, politically, I think the key was that some of the toughest questions were being raised by two conservative Republican senators, Chuck Grassley of Iowa and Richard Shelby of Alabama. And that meant, I think, it would be just about impossible for the White House to paint tough questions as a partisan issue.

And, in that case, I think what happened was, they said: "All right, we've got to get out in front of this. Let's take some action." A dramatic government restructuring is what they put on the table.

WOODRUFF: You have to give them credit for moving quickly.

Jeff Greenfield, thanks very much. Have a good weekend.

GREENFIELD: You, too.

WOODRUFF: Bill Schneider's "Political Play of the Week" is coming up, but first let's get a look at what's coming up on "WOLF BLITZER REPORTS" -- hello, Wolf.

WOLF BLITZER, "WOLF BLITZER REPORTS": Hi, Judy.

A jury puts an end to a 27-year murder mystery. Also, a disturbing discovery involving the remains of Chandra Levy: why Washington's top cop is speaking out. Then hear the inside story of Americans held hostage: the dramatic rescue that didn't go according to plan. And a controversial chapter in a former senator's career: Bob Kerrey shares some emotional moments about Vietnam.

It's all coming up at the top of the hour right after INSIDE POLITICS.

(COMMERCIAL BREAK)

WOODRUFF: And with us: our political analyst, senior political analyst, Bill Schneider.

WILLIAM SCHNEIDER, CNN SR. POLITICAL ANALYST: You know, timing is everything. And, in this case, the timing of the president's speech was a little suspect. But, hey, this was a matter of national security, not politics, right? Well, no reason it can't be both.

In fact, no reason it can't be the "Political Play of the Week."

(BEGIN VIDEOTAPE)

(voice-over): The White House has been struggling to regain the initiative in the debate over homeland security. At first, it went on the attack. DICK CHENEY, VICE PRESIDENT OF THE UNITED STATES: They need to be very cautious not to seek political advantage by making incendiary suggestions.

SCHNEIDER: But it became harder to sustain that position as more and more revelations started coming out about intelligence failures.

Jokes were cracked.

(BEGIN VIDEO CLIP, "THE LATE SHOW WITH DAVID LETTERMAN")

DAVID LETTERMAN, HOST: The CIA announced that they plan now to cooperate more openly with the FBI.

(LAUGHTER)

LETTERMAN: They just haven't told the FBI yet. But they're thinking about it.

(LAUGHTER)

(END VIDEO CLIP)

SCHNEIDER: Time for some damage control. The first step? Just like in rehab, admit you've got a problem.

BUSH: In terms of whether or not the FBI and the CIA were communicating properly, I think it is clear that they weren't.

SCHNEIDER: This week, Congress seized the initiative.

SEN. RICHARD SHELBY (R), ALABAMA: I believe that the information will come out -- some public; some will be classified and never come out -- showing that there were massive intelligence failures.

SCHNEIDER: So then the White House made its big move. For months, the administration line has been clear and consistent.

ARI FLEISCHER, WHITE HOUSE PRESS SECRETARY: So, creating a Cabinet office doesn't solve the problem.

SCHNEIDER: The president's message last night? Never mind.

BUSH: Tonight, I propose a permanent Cabinet-level Department of Homeland Security.

SCHNEIDER: Wait a minute. Isn't that what Democrats like Senator Joe Lieberman were pressuring for? Yes. But, in politics, there is no penalty for stealing your critics' ideas.

SEN. JOSEPH LIEBERMAN (D), CONNECTICUT: I congratulate the president.

SCHNEIDER: The president made his announcement the very same day key witnesses were testifying before Congress about pre-September 11 failures of intelligence. SEN. BOB GRAHAM (D), FLORIDA: And I think, in terms of timing, it gets him off the defensive and puts him into the leadership position.

SCHNEIDER: Remember the movie "Wag the Dog?" This looked a little like "Wag the Cabinet" and a lot like the "Political Play of the Week."

(END VIDEOTAPE)

SCHNEIDER: And a miracle they kept it a secret.

WOODRUFF: It is a miracle. Timing's everything.

Bill Schneider, thanks very much.

SCHNEIDER: Sure.

WOODRUFF: That's it for INSIDE POLITICS. I'm Judy Woodruff. Thanks for joining us.

"WOLF BLITZER REPORTS" is next.

TO ORDER A VIDEO OF THIS TRANSCRIPT, PLEASE CALL 800-CNN-NEWS OR USE OUR SECURE ONLINE ORDER FORM LOCATED AT www.fdch.com



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