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JUDY WOODRUFF'S INSIDE POLITICS

Bush Gathers Economic Leaders to Discuss Second Term Agenda; 9/11 Commission Member May Run for DNC Chair; Bush to Join Tradition of Wartime Presidential Inaugurations

Aired December 15, 2004 - 15:30   ET

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


ANNOUNCER: Pocketbook politics. Just in time for Christmas. Will an economic conference help the Bush White House ring in a prosperous new year?
A clash of financial Titans. We'll get dueling takes on the economy from Commerce Secretary Don Evans and former deputy treasury secretary, Roger Altman.

Having a ball, how will the president's second inaugural reflect America at war?

Now live from Washington, Judy Woodruff's INSIDE POLITICS.

(END VIDEOTAPE)

JOHN KING, HOST: Thanks for joining us. Judy is on assignment. I'm John King.

It's a time honored, if not always effective, strategy here in Washington. Got a problem? Organize a conference.

The White House today opened a two-day meeting to address some of the top economic priorities for the president's second term. Administration officials call it a way to learn from business leaders and families from across the country.

But others see scripted cheerleading for the Bush agenda.

Here's our White House correspondent Dana Bash, standing by at the White House.

Dana, the president doing this today in the lead-up to the State of the Union address. The chief goal for the White House: to give us details or to build public support?

DANA BASH, CNN CORRESPONDENT: Well, they're still searching for details, John. So clearly at this point it's to build up public support. And they're not shy about that.

They say that this economic -- this economic summit is to gather policy makers, is to gather CEOs, and to gather others, many of whom -- most of whom do not disagree with the president on anything at all.

But to talk about this, and to explain that there are major economic agenda items coming. And that's what the president talked about today.

(BEGIN VIDEOTAPE)

BASH (voice-over): Even with the Italian prime minister, the president talks up a top domestic priority: reforming Social Security, saying his reelection should quiet critics of his plan to create private retirement accounts for younger Americans.

GEORGE W. BUSH, PRESIDENT OF THE UNITED STATES: In the 2000 campaign, in the 2004 campaign, I took the message to them. They realized, like I realized, now's the time to deal with the problem.

BASH: The White House is putting on a carefully orchestrated invitation-only summit for policy and business leaders to talk up the economy.

UNIDENTIFIED MALE: This past year, we've had one of the most successful years we've had since the '90s.

BASH: And lay the groundwork for the president's ambitious second term economic agenda.

No new policy ideas here. It's the start of a P.R. campaign for everything from the vague Bush vow to reform the tax code to the more immediate promise to curb lawsuits.

BUSH: I intend to take a legislative package to Congress which says we expect the House and the Senate to pass meaningful liability reform on asbestos, on class action and medical liability.

BASH: But it's tackling Social Security that's been stirring up the most emotion. The president insists he wants to reach across party lines.

BUSH: We have a problem. Let's work together to deal with it.

BASH: But many Democrats disagree with Mr. Bush on the scope of the problem, pointing to these figures. Social Security's trustees estimate the program won't go broke until 2042. And even then they say recipients still get 73 percent of their benefits.

(END VIDEOTAPE)

BASH: And John, many Democrats point to that to say that they think that the president, the White House, is exaggerating this problem at this time in order to push a long-term and long-time Republican political idea. And that is to create private accounts for Social Security -- John.

KING: And Dana, the president talking about a long-term structural reform to the tax code. What about that campaign promise to make the existing tax cuts permanent?

BASH: That's another thing that we heard today at the summit, reiterating the campaign promise. We heard it from the vice president. We heard it from the treasury secretary, that they still intend to make the first-term Bush tax cuts permanent.

Some estimates say that could cost at least a trillion dollars, which is leaving a lot of people scratching their heads, trying to figure out how the White House is going to do all of this and still fulfill the promise to cut the deficit in half in five years.

KING: And I was struck earlier today while in the Oval Office, to what you might call the president's holiday season prescription for the U.S. trade deficit.

BASH: That's right. The president said -- you're right, it was sort of a holiday prescription, not something that you would anticipate economists would say. When he was asked about the trade deficit, he said it's a solution that's quite easy. He said people should just buy American. He said it's as easy as that.

KING: As easy as that from the president. Dana Bash at the White House, thank you very much.

Now let's bring in a top participant in today's economic conference, the outgoing commerce secretary, Don Evans.

Secretary Evans, thank you for joining us.

I want to ask you first this question: many, when they deal with this Social Security proposal worry, because they say more government borrowing will be necessary for the transitional period.

Why not wait two years, prove to the bond markets, prove to the financial markets, prove to the Democrats and the American people that the administration will start to cut the budget deficit, and then come back with a proposal that will require more deficit spending?

DON EVANS, COMMERCE SECRETARY: You know, John, we already have started to cut the budget deficit. As you know, we're down about a hundred billion dollars from the estimates of about a year ago. The estimates a year ago were over $500 billion. It looks like the budget deficit is going to come in at about $413 billion.

And it's clear that we're on the path to -- to reduce the short- term budget deficit by 50 percent over the next five years or so.

And so it's time to shift to the longer term budget deficit issues like entitlement programs of Social Security and Medicare.

And the president is very focused right now on Social Security. He sees it as a $10 trillion unfunded liability that's out there. And he's been talking about it for over five years now.

He's talked about it, certainly, in the 2000 campaign. He's talked about it throughout -- he put a bipartisan commission together to deal with it during this last term. And now it's time to solve that problem.

We've got to quit pushing these problems on down the road and put them on the backs of our children and grandchildren. It's time to deal with them now. And that's what the president fully intends to do.

KING: Help me, sir, understand the timetable for significant tax overhaul. On the one hand the administration says it wants to look at completely redrawing the system.

On the other hand officials today saying, but in the short-term you do need to make the existing tax cuts permanent.

Is that too confusing a debate? Should you just focus on one and not the other?

EVANS: Well, I don't think so, John. I think you can work on both of them at the same time. I mean, it's certainly clear the president has been talking a long time about how important it is for the tax cuts to be permanent. In fact, that's what he argued back in 2001.

And so, you know, I think for the certainty of the American economy and business leaders and people making investment decisions, they need to know that the tax cuts are going to be permanent.

But, also, the president knows if we're going to be globally competitive in the years ahead, it is time to reform a tax system, tax code system, that was designed for an economy of the '50s, '60s and '70s.

If we're going to make sure that we're doing everything we can to be the most competitive country in the world, and create more growth and more jobs in America, our tax code needs attention, needs to be reformed, needs to be fair. But it needs to focus on global economic growth.

And so, you know, I think you can do both at the same time, John. I would say to you that, you know, the tax reform effort -- the president's going to put together a commission that will be a bipartisan commission that will report to the secretary treasurer, secretary of the treasury, sometime in mid, say, in 2005.

And then they will take those recommendations and work on them for awhile. And so it's going to take a little bit of time. But the president is certainly very committed to it.

KING: Mr. Secretary, you talk about global competitiveness. As you know, one of the complaints from your counterparts around the world is the state of the U.S. dollar right now.

The president again saying today that he supports a strong dollar policy, but around the world and even in this country you will have many who will say that's simply lip service, that the administration has done nothing, not once intervened to try to prop up the dollar.

Do have you a credibility crisis there?

EVANS: No, I don't think so, John. I'm not going to get into the discussion of the dollar. That's a discussion for the secretary of treasury as well as the president. But, you know, I would say to you, when you look at the trade deficit that we have in the country, it's clear that, you know, one of the problems we're seeing is that the rest of the world is just not growing as fast as the American economy.

Right now we have a very strong economy. And we are growing faster than any industrialized country in the world.

And so what we need to see around the world is we see -- need to see other economies pickup the pace of growth and encourage economic growth. Then the trade deficit that we're facing right now would not be as large as it is.

KING: Commerce secretary Don Evans. Sir, if we don't get a chance to talk again in the next month, enjoy life back in Texas.

EVANS: Thank you, John, been always good -- always been great working with you.

KING: Take care, sir.

EVANS: Thank you.

KING: And later we'll get a Democrat's take on the economy and the Bush administration's policies from a top Treasury Department official in the Clinton White House, Roger Altman.

The Bush White House is still hunting for a new homeland security secretary. In part, CNN has learned, because Democratic Senator Joseph Lieberman says he isn't interested in the post.

Congressional and other government sources tell us Lieberman said no when approached in recent days about that cabinet job at homeland security. They say Lieberman also rejected an earlier White House overture about possibly becoming the United States ambassador to the United Nations.

The White House says it won't comment on personnel matters. Lieberman's spokesman says the senator did not get any formal job offer, but he would not comment on any informal discussions Senator Lieberman might have had with the White House.

Meantime, more post mortems on Bernie Kerik's short-lived nomination for that job. New York Democratic Senator Charles Schumer had praised the president's choice of Kerik. Here's what Senator Schumer had to say today.

(BEGIN VIDEO CLIP)

SEN. CHARLES SCHUMER (D), NEW YORK: I think that Bernie Kerik had no choice but to step down. He did understand the needs of homeland security and of New York and would have been a fighter for them.

And we hope that the president nominates somebody who will understand the needs of homeland security as strongly as Bernie Kerik did.

(END VIDEO CLIP)

KING: We'll talk more about the Kerik nomination and what went wrong ahead.

There's a hot new prospect in the campaign to head the Democratic Party. Up next, I'll ask former congressman and 9/11 Commissioner Tim Roemer about the pressure he says he's getting to run and what he might bring to the Democratic National Committee.

Also ahead, after John Kerry's defeat are Democrats feeling more southern discomfort?

And later, it's a dog's life. We'll enjoy the return of Barney Barney-cam.

(COMMERCIAL BREAK)

KING: Showing you live pictures now of a major apartment fire in suburban Atlanta, this in Cobb County. You see, from our affiliate WAGA, a raging fire in an apartment complex in suburban Atlanta, Cobb County, just north of Atlanta.

Very few details in as yet. We will continue to follow this developing story. Obviously, you can see a very major fire underway, again, in a residential apartment complex near Atlanta. We'll keep track of that as we continue.

Former Indiana Congressman Tim Roemer is the latest Democrat considering the race to succeed Terry McAuliffe as leader of the Democratic National Committee.

I spoke with Tim Roemer a short time ago. And I started by asking him if accounts from our sources are true, and if he is indeed running for party chairman.

(BEGIN VIDEOTAPE)

TIM ROEMER (D), FORMER INDIANA CONGRESSMAN: I'm flattered by the compliments from the grass roots from all over the 50 states, I'm flattered that some of the leadership would try to talk me into running for this race. But it's still a little early. I'm seriously considering this.

First of all, John, you look at the past election and we, as Democrats, lost 97 of the 100 fastest growing areas. We lost ground with Hispanic voters. We lost married women on national security issues.

We need to be more concerned about '05 and '06 and '07, not just the presidential campaign of '80. We need to be concerned not just with blue states but with every state is a battleground.

KING: Does the party need to be more conservative? Not just more concerned, but more conservative? You come from Indiana. You're a member of the Democratic Leadership Council. You have a voting record that is more conservative than many might say is the mainstream or the accepted mainstream view of the Democratic Party. Does the Democratic Party need to move to the center?

ROEMER: Well, here's what I bring to this race if I decide to pop in and fight for it and fight for the country and fight for the party.

One, I come from a red state, where I made it more purple. I won six elections in a conservative Republican state.

And, two, I worked with our Democratic Caucus, the Black Caucus, the Hispanic Caucus, the diversity of our party. We look like America, but we need to represent the national security values and the religious values and the face values of our country.

Three, we need to be able to talk about national security issues. I did that on the 9/11 Commission. We need to hit them head on that we can be tougher, smarter, and better on national security than the current administration is.

KING: Let's talk about a cultural issue, abortion. You voted for the ban on late-term abortions. You voted for banning federal funding to overseas groups that provide abortion counseling or abortion services.

There are some interest groups, as you know, who are traditionally more aligned with the Democratic Party who would say that is not who we want as the chairman.

ROEMER: Listen, we need to be competitive in all 50 states. We need a chair that can go into a so-called red state like Louisiana, where we just had two state -- two races up for grabs, or Montana, where we just have a brand new elected Democratic governor for the first time in 16 years. And talk about faith and talk about our values.

I personally don't think that we should have late-term abortions or partial birth abortions. I think that's a moral blind spot.

I think our party needs to be bigger and more inclusive as a Democratic Party. Most people in this country think we're of one view.

Who did President Bush -- who was he seen with more than almost anybody else in the last month of the campaign? Governor Schwarzenegger and governor -- or former Mayor Giuliani. People that he disagreed with on the abortion issue.

Our party needs to be able to converse about that issue. And have a big tent on that issue.

KING: Let's talk about some of the big issues the president will be pushing and one assumes the next chairman of the party will have to be opposing or at least challenging him on in the next several years.

One is Social Security, the economic issues. The president says let's change Social Security. Let's allow younger Americans to take some of the payroll taxes and put them in private investment accounts, stocks, bonds and the like.

For or against?

ROEMER: I'm not taking positions running for the Democratic national chair on Social Security at this point.

Do we have to be very cautious about where we go on that? Do we have to make sure Wall Street, which is going to be concerned about the borrowing and the deficit, if the president decides to borrow money to pay for the transition costs? Fund managers are going to get rich on that proposal, but bond managers are going to be very concerned.

What about the hardworking people that may lose some of their retirement right before they retire? We probably should have an option on the table after the president puts one out there, but we need to think this through and we need to challenge the president on some of his proposals already out there.

(END VIDEOTAPE)

KING: Former Democratic congressman Tim Roemer, a bit earlier today.

Retiring GOP Congressman, Billy Tauzin has reconsidered his early decision and has now accepted the job as president of the trade association for the nation's drug companies.

Tauzin turned down the post earlier this year following criticism by Democrats and watchdog groups. At that time he was the chairman of the House committee that regulates the pharmaceutical industry.

Tauzin also has battled cancer since he first turned down that job, and a source tells CNN Tauzin wants to be, quote, "a patient advocate CEO."

Checking the "Political Bytes" on this Wednesday.

A new analysis of the presidential election results highlights how the once solidly Democratic South was firmly in the camp of George W. Bush.

Across the south President Bush carried more than 1,100 counties, while Democrat John Kerry won just 216. Kerry's victories were concentrated in counties where my minorities are in the majority. The "Los Angeles Times" reports President Bush carried more than 90 percent of counties where whites are in the majority.

There is some positive news for Democrats, however. "USA Today" notes the Democrats picked up 60 seats in state legislatures nationwide on election day. That means the Democrats now outnumber Republicans in state legislatures by two seats with two races still undecided.

Michigan Democratic Congressman John Conyers wants the FBI and an Ohio County prosecutor to investigate what Conyers describes as inappropriate and likely illegal election tampering in Ohio.

Conyers bases his request in part on claims that vote counting software was tampered with before that state's recount began.

Meantime, a federal judge in Ohio has ruled the use of punch card ballots does not deny voting rights to those who use them. The ACLU brought that suit, claiming that punch card ballots are more likely to go uncounted and that punch cards are used most often in areas where black voters live.

And in New York, a new Maris poll finds the Republican mayor, Michael Bloomberg, is trailing potential 2005 Democratic challenger and the former Bronx borough president, Fernando Ferrer.

But the poll also found Mayor Bloomberg ties or leads four other potential Democratic challengers.

Next month's presidential inaugural ceremony will include balls, parades and the traditional fireworks. But with U.S. troops engaged in Iraq and Afghanistan, it will also be a reminder of other -- other inaugurations during times of war.

Bruce Morton takes a look back when INSIDE POLITICS returns.

(COMMERCIAL BREAK)

KING: Plans for the president's second inauguration are taking shape. The theme, "Celebrating Freedom, Honoring Service," will emphasize a nation at war and for the first time include a commander in chief's ball for active duty troops back from Iraq and Afghanistan, as well as their family members.

Bruce Morton now takes a look back at other inaugurations of wartime presidents.

(BEGIN VIDEOTAPE)

BRUCE MORTON, CNN CORRESPONDENT (voice-over): Start with Abraham Lincoln. March 1865, the Civil War nearing its end.

In his inaugural address, Lincoln said, "With malice toward none, with charity for all, with firmness in the right as God gives us to see the right, let us strive to finish the work we are in, to bind up the nation's wounds, to care for him who shall have borne the battle and for his widow and his orphan; to do all which may achieve and charge a just and lasting peace among ourselves and with all nations."

He was assassinated just over a month after speaking those words.

Woodrow Wilson campaigned in 1916 on having kept the U.S. out of World War I. But German submarines had attacked U.S. shipping, and in his inaugural address, Wilson warned, "The tragic events of 30 months of turmoil through which we have just passed have made us citizens of the world. There can be no turning back."

A month later he asked Congress to declare war on Germany. It did.

President Roosevelt in January 1945, the allies moving toward victory in World War II: "We Americans of today, together with our allies, are passing through a period of supreme test. It is a test of our courage, of our resolve, of our wisdom, our essential democracy. If we meet that test, successfully and admirably, we shall perform a service of historic importance, which men and women and children will honor throughout all time."

Roosevelt didn't live to see it, but America did meet the test. And a new monument on Washington's mall honors that greatest generation.

Dwight Eisenhower campaigned promising to end the war in Korea. But in his inaugural, he spoke of America's Cold War role as leader of the free world: "In the discharge of this responsibility, we Americans know and we observe the difference between world leadership and imperialism, between firmness and truculence."

An armistice -- there was never a treaty -- ended the war later that year, but U.S. troops still patrol the border between North and South Korea.

Richard Nixon was elected in 1968 in a country torn apart by division over the Vietnam War. In his first inaugural, he said, "The greatest honor history can bestow is the title of peace maker."

But peace eluded him. The Paris agreement which ended the war was signed much later, just after his second inauguration. And the north really never stopped fighting until it conquered the south in 1975.

So words from presidents in time of war. Now it's George W. Bush's turn.

BUSH: And the people who knocked these buildings down will hear all of us soon.

MORTON: Bruce Morton, CNN, Washington.

(END VIDEOTAPE)

KING: As the Bush administration holds its economic conference, a keeper of the treasury in the Clinton era wants to add his two cents. Maybe a little more. I'll talk with Roger Altman ahead.

And what do the Democrats need most now in a new party chairman? I'll ask two political veterans who have watched their parties head down this road before.

More INSIDE POLITICS coming up.

(COMMERCIAL BREAK) KING: We're now joined by Lou Dobbs in New York with "The Dobbs Report" -- Lou.

LOU DOBBS, HOST, "LOU DOBBS TONIGHT": John, thank you. A big merger in telecom. Sprint and Nextel combining in a $35 billion deal. This just a few weeks after Cingular completed its own acquisition of AT&T Wireless.

This new company, to be called Sprint Nextel, will be the nation's third largest cell phone operator, 35 million customers.

On Wall Street little movement in stock prices today, despite a big jump in oil prices. As the final trades are being counted on Wall Street, the Dow Jones Industrials down just about -- rather, up just about 18 points, the NASDAQ trading flat.

Oil prices soaring more than $2 following a government report showing weaker than expected inventory levels. Crude oil settling above $44 a barrel. CNN's parent company, Time Warner will write a big check to the Justice Department agreeing to pay $210 million to settle criminal allegations of accounting fraud at the company's AOL division. Time Warner also proposing a $300 million settlement with the SEC. The company still faces lawsuits from a shareholder group.

In other news, a stiff warning from a Washington-based public policy group, the Council on Competitiveness warning America is at risk of losing its lead as the world's economic power to countries such as China and India. In a report today, it says businesses, academia and government must do more to help American workers succeed calling for more spending on research and development and the creation of a cabinet-level innovation czar.

Coming up on CNN tonight at 6:00 p.m. Eastern on "LOU DOBBS TONIGHT" plenty of retailers hiding behind the words "season's greetings." Macy's of all people prefers that its clerks wish customers "a happy holiday." Since when did the word "Christmas" become so controversial? We'll have a special report on what is for some a very PC Christmas and the outrage that is following.

Also tonight, red star rising. Our special look into China's emergence as a global superpower, China dominating the textile industry, technology as well, putting hundreds of thousands of Americans out of work. I'll be joined by former U.S. ambassador to China James Lilly.

And our special report on Broken Borders, an eight-year project to build a fence along a portion of the Mexican border meeting with major political roadblocks. We'll take a look at why the government has yet to finish the project it began.

In our face-off, should our local law enforcement be involved in deporting illegal aliens. My guests tonight in that debate Suffolk (ph) County Executive Steve Levy (ph), Suffolk County legislator Paul Tonna (ph). We hope you will join us 6:00 p.m. Eastern right here on CNN. Now back to John King in Washington -- John. KING: Stay with us a second, Lou. You mentioned this competitiveness report, more are indeed spending perhaps a cabinet- level innovation level czar. Anything in this report about trade policy, about outsourcing policy?

DOBBS: Unfortunately, everyone, it seems, wants to be part of the orthodoxy behind this problem. As you suggest, no substantive changes in trade policy. No call to open up the markets of our trading partners to U.S. exports. No call to rationalize our trade policy while principal trading partners, China and Japan, continue with a very planned, strategic approach to trade, which results in their surpluses and our deficits.

KING: Lou Dobbs, thank you very much. We'll be watching tonight. INSIDE POLITICS continues right now.

(BEGIN VIDEOTAPE)

ANNOUNCER: Running scared in Britain? 'Tis the season for angst overseas about the U.S. economy, but some Americans say humbug!

UNIDENTIFIED MALE: What happened between me and the White House is my fault. It's nobody else's.

ANNOUNCER: Who's to blame for the Kerik nomination embarrassment. The finger-pointing and second-guessing isn't over yet.

GEORGE W. BUSH, PRESIDENT OF THE UNITED STATES: Barney, I know you want to be in my cabinet. But I've already given you an important job.

ANNOUNCER: Heading into the height of the holiday season, the White House turns on its Barney cam. Now, live from Washington, JUDY WOODRUFF'S INSIDE POLITICS.

(END VIDEOTAPE)

KING: Welcome back. I'm John King sitting in for Judy today. At the economic conference sponsored by the Bush White House, the president and his team are focusing on agenda items that hit Americans close to home such as tax and Social Security reforms. But in his meeting today with the Italian prime minister Silvio Berlusconi, Mr. Bush talked about economic issues packing a punch overseas, the budget deficit, the trade deficit and the plunging value of the dollar. As our senior political analyst Bill Schneider reports from London, those three Ds are giving some Europeans the jitters.

(BEGIN VIDEOTAPE)

WILLIAM SCHNEIDER, CNN SR. POLITICAL ANALYST (voice-over): Most Americans may not be aware of it but experts say the U.S. economic system may be facing a crisis.

DAVID KOTOK, CUMBERLAND ADVISORS: Become the largest debtor in the world. We owe the world more than it owes us, and that's continuing to deteriorate, and it's been building for a long time.

SCHNEIDER: Policymakers abroad worry about America's huge budget deficit, and the trade deficit and the collapsing value of the dollar. One British pound now costs nearly $2. A few years ago, Americans laughed at the new euro currency. Now the euro is worth more than the American dollar.

CHARLES HODSON, CNN'S WORLD BUSINESS TODAY: The stability of the dollar is really in question. A dollar crash will be a disaster for the world financial system.

SCHNEIDER: Americans traveling abroad are keenly aware of how the almighty dollar has fallen.

LILY PARTIN, AMERICAN TOURIST IN LONDON: We were looking at watches, and we noticed that they're double the price that what you would get in the U.S.

SCHNEIDER: Why is the dollar so cheap? Because the United States must get overseas investors to keep financing its debt.

HODSON: Have you ever tried selling something of which there's an abundant supply, it's a really tough gig. That is what the U.S. Treasury is trying to do with all of that budget deficit.

SCHNEIDER: Is President Bush seriously concerned? He appears to be.

BUSH: We'll do everything we can in the upcoming legislative session to send a signal to the markets that we'll deal with our deficit which hopefully will cause people to want to buy dollars.

SCHNEIDER: It's either that or raise interest rates. But many people believe the Bush administration is not too concerned about the falling dollar. After all, it makes U.S. products cheaper to sell overseas.

KOTOK: And there's some evidence that the Bush administration's policies aren't going to do anything to correct it, so in fact, you may say they wanted to weaken only they won't say so publicly.

SCHNEIDER: Why is U.S. debt bigger problem for the rest of the world than the United States? If you owed the bank a thousand dollars, it's your problem. If you owe the bank a million dollars, it's the bank's problem. Bill Schneider, CNN, London.

(END VIDEOTAPE)

KING: We heard Commerce Secretary Don Evans' more upbeat take on the economy a bit earlier.

Up next, a counterpoint to the Bush team from Clinton era deputy treasury secretary Roger Altman.

Also ahead, the implosion of Bernie Kerik's nomination. Political veterans Jack Valenti and Ed Rollins weigh in on what went wrong.

Later, Barney cam returns. We'll find or at least look for the political humor in this Bush White House holiday tradition.

(COMMERCIAL BREAK)

KING: Some sad news today. Pauline Gore whose husband was a U.S. senator and whose son served in the Senate and later was vice president, died today at her home in Carthage, Tennessee. Mrs. Gore was one of the first female graduates of Vanderbilt University Law School back in 1936. Her late husband Al Gore Sr. served in Congress for more than 30 years. And her son narrowly lost to President Bush in the contested election four years ago. Pauline gore, a remarkable woman dead at age 92. INSIDE POLITICS will be right back.

(COMMERCIAL BREAK)

KING: For more now on the Bush Economic Conference and the state of nation's economy, I'm joined by Roger Altman. He was adviser to the John Kerry presidential campaign, he also served as deputy treasury secretary under President Clinton. Roger Altman joins us from New York.

Watching the Bush Economic Conference today, sir, the administration talking about its goals for the second term, Social Security reform, tax reform, anything in your view glaringly missing from the agenda?

ROGER ALTMAN, FMR. DEP. TREASURY SECRETARY: I think the most interesting thing or one of the most interesting things, John, about the conference is what's not being discussed. What's not being discussed are most of the issues that are concerning financial markets and economic observers who take the long-term view, and namely, the budget deficit, the enormous current account and trade deficits, the weakness in the dollar and the way they propose to finance their Social Security private accounts plan. This $1.2 trillion of borrowing.

Those are the issues that are concern to most in the economic world who aren't affiliated with this White House or for that matter, the Democratic party, and those aren't being talked about very much here because they're not particularly happy subjects and this conference, like many of them, the Republicans are not alone in this, is essentially a public relations forum to build support for some of the initiatives they're coming forth with.

KING: Well, let's talk about them, you and I, for just a second and let's take the dollar, for example. The president said again today and he has said this dozens of times, but he's for a strong dollar. But of course, others say then why has the administration never intervened to prop up the dollar. Why has the administration not asked for help from other countries in propping up the dollar? What is the consequence?

ALTMAN: Well, the real problem is the low U.S. savings rate, which is at a record low and the fact that whether it's the savings that private citizens and businesses are not accumulating or that the government, of course, by running a deficit, is not accumulating, the enormous borrowing that we're building up in order to replace that. And that borrowing is financed by foreign investors who are accumulating bigger and bigger piles of U.S. dollars in the form of the assets they buy, bonds and stocks and so forth, particularly bonds, particularly treasury bonds, and ultimately, it's unsustainable.

In other words, there's not an unlimited appetite, even for U.S. treasury securities and what concerns a lot of people about the outlook for the dollar is not the outlook tomorrow or the day after tomorrow, but rather that there is ultimately a limit on the amount of our deficit financing, which can be accommodated by foreign central banks and other foreigners and that we seem to be doing nothing to slow down the rate at which we're borrowing and depending on those foreign sources of capital and ultimately there'll be a big price to pay, and often those prices come upon us suddenly and in a very tumultuous fashion, as far as all financial markets are concerned.

KING: An economic argument, sir, but give me the Democratic political counterargument, if you will, to the Bush administration's take that Social Security is an urgent problem, and we will need to borrow more, and, yes, that might be a bit of a problem, but the bigger problem is doing nothing.

ALTMAN: Well, this won't surprise you, John, but their proposal on Social Security private accounts, which is, in short, yes, there are one to two trillion dollars of so-called transition costs, but we're just going to borrow them and let the next generation worry about it is dangerous, misguided and very questionable from the point of view of whether the Congress will ultimately support it. It's a bad idea because they're fundamentally saying you know, we're running a $350 billion budget deficit roughly right now, why don't we expand that by five or ten times really right now and borrow, instead of $350 billion a year, 1 to $2 trillion over just a couple of years here to finance ourselves on the way to Social Security private accounts?

And even though that's a tremendous amount of borrowing, nobody will really pay attention to it, because we'll put that borrowing on a 10 to 20 year basis and we can all just wink and nod at it. That's a dangerous idea, it's a bad idea, I know very few people in the private sector, and I mean very few, very few, who support that approach, and I think it's very much unclear as to whether even with the famous Republican party discipline in the Congress, they can pass that risky and audacious a plan.

KING: Let me ask you this. It's more of an inside politics question than it is an economic question, as the president has what you call a PR event today -- he, of course, is about to be inaugurated for a second term, he has the State of the Union, he has the majorities in Congress. Do you worry that your party lacks a well- known identifiable counterspokesman, if you will, on these very important economic issues?

ALTMAN: I think the fair answer to that question is yes. Maybe that's not the politically correct answer, John, but it's the fair answer. I have to give them credit, and I do give them credit. They ran a shrewd and extraordinarily well-executed campaign and they've done a superlative job persuading this country of their approach and their message. And in sheer political terms, you have to respect, and I do. And the Democratic party is on the defensive. Obviously, it's representation in Congress has shrunken, and it's not going to be easy to put forward the alternatives, for example, to Social Security private accounts and this proposed financing of them that you and I just discussed.

But it's mandatory for the sake of the country that we do put forward intelligent alternatives, I'll just give you one. We ought to go back and put in place the tax rollbacks for the top two percent of Americans that Senator Kerry talked about. Add to that the maintaining and not eliminating of the estate tax and take the savings associated with that, and dedicate those directly to Social Security. That's an intelligent, conservative approach to shoring up Social Security. It's much less risky and much safer than the approach they're taking. That's the type of alternative, it's not the only one -- but the Democrats need to be expounding, and yes, we're a bit short on spokesmen who can effectively do that...

KING: Roger Altman...

ALTMAN: Parties in opposition are often in that position, we're in it, we'll get past it and we'll recover, I'm sure of it.

KING: And we will rely on you from time to time as we go through that transition. Roger Altman, thank you very much for your time today.

ALTMAN: Thank you.

KING: And up next, the lingering question surrounding the Bernard Kerik nomination. Two political veterans will join me to talk about Kerick's quick exit as well as the ongoing race for chairman of the Democratic party.

(COMMERCIAL BREAK)

KING: Quick update now on a developing story. Our State Department correspondent Andrea Koppel has confirmed that U.S. officials believe that terrorist groups are planning to stage attacks in Kuwait. The State Department saying that the United States wants to warn that terrorist groups are preparing to carry out attacks in Kuwait in the near future. This is the message circulated by the embassy to American citizens in Kuwait. We will continue to bring you more developments on that story as we get them.

INSIDE POLITICS continues now, and with me are two veterans of Washington's political wars. Jack Valenti was an adviser to President Lyndon Johnson, Ed Rollins is a longtime GOP strategist and adviser to president Ronald Reagan. Thank you, both.

Let's start with this debacle -- I can't think of a better word -- over Bernard Kerik. The president says he will be the next secretary of homeland security, in a few days he is gone because of problems with his background including a nanny, didn't pay taxes, illegal immigrant, perhaps. Jack Valenti, Bernie Kerik's problem or George Bush's problem?

JACK VALENTI, FMR. AIDE TO PRES. JOHNSON: Simple explanation, they didn't vet him. This is something that has to be done. The FBI has to do this. There's so many things in a man or woman's background, and I think that probably he forgot or didn't tell the White House that Mr. Kerik wasn't completely candid, and maybe not because of deliberateness but just didn't, and this is a question of vetting, simple and pure.

KING: Ed, some would say it's also a question of overconfidence even arrogance that in the wake of the election the Bush White House feels good, they won, 51 percent, they have more Republicans in Congress. Perhaps not as careful, not as patient as they should have been?

ED ROLLINS, GOP STRATEGIST: I think there were a lot of missteps and as I do to my candidates I always say pretend I'm your priest, confess all your sins and I'll tell you whether they're mortal or venial. I think Bernie is a lovely man, a very effective commissioner, but I think he didn't come under the scrutiny you come under when you're in a high-profile position like he was going into, and I think to a certain extent he got away with a lot of things and didn't get scrutinized quite the way that he would in Washington.

There's a clause at the end of any disclosure form. And Jack's been involved in picking people and I have too, when I was in the White House, the last thing on the disclosure form, is there anything else you want to tell us that would be embarrassing to the president? And I would have hoped that Bernie would have been a lot more candid about that and certainly the president could have saved himself embarrassment and he could have saved himself embarrassment.

VALENTI: But I think once the president picks someone else to do this the story's over.

KING: Let's get in on the someone else. One of the people they approached as the possible someone else is a Democrat, Joe Lieberman, senator of Connecticut. And our sources tell us they approached him, didn't offer him the job, but said would you be interested in talking to the president about this? And Senator Lieberman, I'm told, said he was conflicted, flattered but no, he's going to stay in the Senate. Ed Rollins, why Joe Lieberman, make sense to you?

ROLLINS: Well, Joe Lieberman has a great deal of respect by both Democrats and Republicans, and played a critical role in setting up the homeland security. I think the difficulty there is that there is a Republican governor, a new governor who would get to a point of replacement which would be another Republican so I think to a certain extent Lieberman does not want to leave his colleagues in the Senate where they are already a little shorthanded.

KING: Shorthanded. Do you want Joe Lieberman in the Senate as a Democrat or do you want him in the Bush cabinet? VALENTI: He's a first class guy. I think he realizes he has a bully pulpit in the Senate that he may not have in homeland security. You do report to the president. As a senator he reports to the people of Connecticut. Big difference. And I think he would lose that pulpit. And he's very good on television, to speak his mind. He's candid, he's respected, a man of enormous integrity. So I think he probably made the right decision.

KING: You say a bully pulpit for Joe Lieberman in the Senate. One of the questions when we had one of the likely candidates on the program earlier today is who will lead the Democrats, who will be their chairman, their lead spokesman for the next two years at least heading into the midterm elections and then we start the next presidential cycle. How important, Jack Valenti is that job right now, and why is it that we have a half dozen people sort of drifting around, there's no clear candidate?

VALENTI: First, only 400 people who do this voting. I happen to believe that the chairman of the Democratic National Committee is not near as important as governors and senators. I don't know of a single Democratic National Committee that's gone on to higher office. I'm not aware of any. I take that back. George Bush the elder went on to a fairly high office. Essentially, he's an appointed man by a small group of people, and he can, by the force of his personality, can make some impact on the public consciousness, but a senator, a congressman, and a governor, these are the people, I think, if the Democratic party is to reassess and reassemble and revise itself, that's where the leadership is going to have to come from.

KING: You agree with that, Ed, and look at results in this election, could not the new chairman by power of his office do something about the structural grassroots defeat the Democrats suffered?

ROLLINS: I don't think they suffered a defeat at the grassroots. There's a lot of dialogue about that. But I think both parties had every resource possible, certainly in modern times. I think the bottom line is that Kerry couldn't connect with voters, and I think Bush had a very effective message of don't change ships in the middle of a crisis. I think the national chairman can be important, but I don't think he's important as the people Jack talked about. Equally as important is going to be the role of Nancy Pelosi and the new leader of the Senate. Someone in the Senate has to step forward, whether it's Joe Biden or John Kerry again, and be a significant player and a loud voice.

KING: I'm going to ask you both quickly in closing, this economic conference, two days, the president making his case for Social Security reform, tax reform, second term agenda. How important is this period between now and State of the Union and the new budget. Are we just passing the days here and the president sees an opening to make news? Or is this truly important to him politically?

VALENTI: I would tell you what Lyndon Johnson once said when John Kenneth (UNINTELLIGIBLE) tried to get him to make an economic speech when Johnson was president. He said, "Ken, a president make an economic speech is like a fellow tinkling down his leg. It makes him feel warm but nobody else knows what the devil is going on."

KING: Want to try to top that, Ed?

ROLLINS: I would agree with that. The only thing that I would urge at this point in time, the president is going to move forward with a Social Security alternative program and the present one, and some sort of a tax bill. He's got to use this period of time to get his own party in line and reach out across the aisle. We can't do this by Republicans alone, and if we do we'd pay a very heavy price. I think trying to pull those pieces together having something ready for his State of the Union speech would be very important.

VALENTI: One sentence more, John. I think this is going to be a huge political battle, not only within the Republican party but in the Senate and House as a whole and in the country, because some of the bold moves the president wants to make are going to make enormous revisions in the way we deal with Social Security, and just about everything else, too.

KING: Jack Valenti, thank you. The sentence before that, the tinkling down the leg is going to stick with me. Jack Valenti, Ed Rollins, thank you both for your time.

ROLLINS: Happy holiday.

KING: Thank you. Same to both of you.

In this holiday season is Bush political strategist Karl Rove seeing red? Find out ahead, when we get the Barney the dog's eye view of life inside the Bush White House.

(COMMERCIAL BREAK)

KING: Now a bit of a holiday tradition at least from the Bush White House. Barney cam is back. And as you might imagine on this program, we're a bit partial to the scenes with prominent political figures.

(BEGIN VIDEOTAPE)

BUSH: Barney, I know you wanted to be in my cabinet, but I've already given you an important job. Your job is to take care of Miss Beasley. Your job is to welcome her into our family.

UNIDENTIFIED MALE: Barney, don't take it personally, you're not a lawyer.

UNIDENTIFIED FEMALE: Barney, you're a dog! Besides Barney, we heard you just got a very important job, taking care of the new puppy. You've got to show Miss Beasley the ropes. Where is anyway?

UNIDENTIFIED FEMALE: Don't look at me, Barney. I'm trying to leave no child behind.

UNIDENTIFIED MALE: Who decorated this tree with blue ornaments? I haven't seen her, Barney. Why don't you go check Ohio. We went there a lot of times.

Red ornaments, I need red ornaments!

(END VIDEOTAPE)

KING: Some fine acting there by Karl Rove. Might want to keep his day job. That's it for INSIDE POLITICS. I'm John King. Judy will be back tomorrow. "CROSSFIRE" starts right now.

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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