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JUDY WOODRUFF'S INSIDE POLITICS

Hillary Clinton Interview; Donna Brazile and Bay Buchanan Discussion; John Snow Interview

Aired May 26, 2005 - 15:30   ET

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


(BEGIN VIDEOTAPE)
ANNOUNCER: Tough questions for Hillary Clinton.

JUDY WOODRUFF, CNN ANCHOR: You were asked to pledge at some point between now and next year whether you will definitely fill out a six-year term in the Senate, what would you say?

ANNOUNCER: Judy presses the senator about her presidential ambitions and other hot topics, including her party's problems and Tom DeLay's character.

A new blow to "the Hammer." What does a judge's ruling in Texas say about Tom DeLay's ethics?

GOV. ARNOLD SCHWARZENEGGER, (R) CALIFORNIA: I am a machine.

ANNOUNCER: Combat in California. Arnold Schwarzenegger usually won his on screen battles, but has he picked the wrong fights as governor?

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

(END VIDEOTAPE)

WOODRUFF: Thank you for joining us.

Few would argue that Hillary Rodham Clinton is a compelling public figure. One of the many reasons for that, the unprecedented possibility that the former first lady might return to the White House as president.

Our just released poll shows that 53 percent of Americans say they are at least somewhat likely to vote for Senator Clinton for president in 2008. That is an 11 point increase from two years ago.

I talked at length with Senator Clinton today about her future and political challenges right now. I started by asking her whether Democrats really got that much out of the deal that ended the Senate showdown over judges.

(BEGIN VIDEOTAPE)

SEN. HILLARY CLINTON, (D) NEW YORK: From the perspective of the institution of the Senate and our system of checks and balances and respect for the constitution and separation of powers, all of these very fundamental principles that we have operated under as a nation for so many centuries now, I think we have. I think it was a very good moment for the Senate as a whole when the 14 senators made that agreement.

Now, obviously, there are some very unfortunate side effects of any agreement. Usually when you have a compromise, which this was, it doesn't satisfy anybody 100 percent. And we will probably see the confirmation of people who are very extreme. And I regret that.

WOODRUFF: Some people have noted that you chose not to be part of the group that announced the compromise, that worked on the compromise. The gang of 14. Should somebody make anything of that?

CLINTON: No. I think that this was a process that a couple of my colleagues started, you know, some weeks ago after Senator Reid could not reach any understanding with Senator Frist. And I thought they were pursuing a noble effort. I didn't know whether they would be successful or not, but I was, you know, certainly supportive of their efforts to try.

I was ambivalent about what the right thing for the country was. I believed, or at least maybe I hoped, that if the trigger were pulled, there would be six Republican senators who, in the tradition of profiles and courage -- Margaret Chase Smith standing up against McCarthy, others take lonely but very important stands on behalf of the constitution and the institution of the Senate -- that there would be those six Republicans. And I'm not sure there wouldn't have been. We will not know now, obviously.

WOODRUFF: Very different subject, Iraq. Record numbers of Americans continue to die in Iraq. No end to the violence in sight that most people can see. When should the United States begin significant troop withdrawals?

CLINTON: Well, there's a preliminary question to that. And the preliminary question is, when will the United States have a strategy that can gain the confidence of the Iraqi people, support the new Iraqi government and protect our troops. And we haven't had that.

You know, I am not one who feels comfortable setting exit strategies. We don't know what we're exiting from. We don't know what the situation is moving toward.

I have said on many occasions, I regret deeply the way the president and the civilian leadership at the Pentagon pursued this action in Iraq. I think numerous mistakes were made. And I believe that it is unfortunate that the Congress, under Republican leadership, has been unwilling to hold the kind of oversight hearings that previous Congresses have done.

How do we know where we're headed, when we don't know where we are. And when we don't get anything but, sort of, a chorus of happy talk from the administration.

WOODRUFF: Senator, there is so much I want to cover, and I know we have limited time so I'm going to move quickly through a couple of other things. Tom DeLay, you worked with the House majority leader on a number of issues, including foster care. Now, many of your Democratic colleagues are saying Tom DeLay is ethically challenged. Do you believe he's an honorable man?

CLINTON: You know, I'm not going to talk about someone's character in that way. Really what happens to him depends upon the House. I have serious disagreements with him politically. I think he is leading the country in the wrong direction. I think his political philosophy is bad for America. I think the decisions that he has made and the way in which he has stifled dissent and run roughshod over democracy with a small d in the House is very bad for America.

So, on political grounds and on policy grounds, I think that his leadership has been unfortunate not only for the House of Representatives, but for the country.

WOODRUFF: Let's talk about you for a moment. Your former -- your old friend, former Georgia Democratic Senator Zell Miller has written in his new book that you just might be elected president in '08. He says because she will position herself much closer to the middle than anybody could have imagined. What do you say to Zell Miller?

CLINTON: Well, I appreciate that. You know, he and his wife Shirley have been my friends for a very long time. And as with friends, we don't always agree on everything, obviously.

But I have a very deep affection for him and his wife. And I take it as high praise, because I have tried very hard in these years in the Senate to, you know, seek out common ground and to look for solutions to problems. And not to turn everything into a partisan wrangle. And not give into the extremes. And I don't care where they're coming from, I think that's bad for our country.

WOODRUFF: Speaking of that, Democrats as we know, were hurt last November in some places on the so-called social issues. Let me ask you about -- you talked about the need for Democrats to do a better job of talking about cultural issues. For example, you said abortion should be as rare as possible.

And yet when it comes to a Supreme Court nominee, Democrats are talking principally about abortion rights instead of affirmative action or social safety net. Is that a mistake for the Democrats?

CLINTON: well, I don't know which Democrats you're talking about, because I'm not. I've given a couple of speeches over the last four years raising concerns about the judicial activism of the Supreme Court. You know, that's not talked about enough.

But this Supreme Court has reversed more legislation enacted by the elected representatives of the people than any other Supreme Court in recent years. And so I'm concerned about judicial activism that really undertakes an effort to turn back the clock on the progress of the 20th Century.

(END VIDEOTAPE) WOODRUFF: Part one of the interview. As one of the nation's most prominent Democrats, Hillary Clinton is keenly aware of the party's successes and mistakes.

(BEGIN VIDEO CLIP)

CLINTON: We may not have done as good a job perhaps in communicating and connecting with people, but that doesn't change the facts of what we stand for.

(END VIDEO CLIP)

WOODRUFF: Still ahead, Senator Clinton on where Democrats are headed and what she may do in 2008.

Also ahead, a new verdict in Texas in the possible political fallout for House Majority Leader Tom DeLay.

And later, is the stem cell research debate driving a wedge among Republicans?

(COMMERCIAL BREAK)

WOODRUFF: Many political observers say they believe Hillary Rodham Clinton has tacked to the center since becoming a senator. But our new poll shows that 54 percent of Americans would peg Senator Clinton as a liberal. 30 percent say they see her as a moderate.

During our interview today, I asked Senator Clinton about efforts to moderate her party's stand on abortion, and she insisted Democrats no longer need to be on the defensive on that issue.

(BEGIN VIDEOTAPE)

CLINTON: I think our goal is to reduce, as low as possible, the number of unwanted pregnancies, to try to help young women and young men make responsible decisions, to be there with adoption as an alternative for young women who do proceed with their pregnancy, to talk sensibly about providing emergency contraception after a woman's been raped. You know, I think that on the overriding goal of whether or not we want to criminalize abortion, criminalize women, criminalize their doctors, a vast majority of Americans say no.

But I think there is a very strong feeling that we should work together to try to create better conditions to reduce abortions. And I would just add that during the Clinton administration, abortions went down. And they've gone back up under the Bush administration. So clearly, what is being done by the current policies are not necessarily working.

WOODRUFF: Similarly, on the question of gay rights, aren't Democrats always going to be on the defensive? You now have 11 states that ban gay marriage. Should Democrats think about changing their position?

CLINTON: Well, I don't know many Democrats who support gay marriage. In fact, I don't and haven't for, you know, years before I became a senator. But I support giving people the right to enter into recognized relationships, that whether you call him civil unions or domestic partnerships, enable them to own property, to have hospital visitation. To me, that's a human rights issue.

Maybe I have just known more people than some of my colleagues, have because I've been blessed to know thousands of thousands of wonderful, patriotic, decent Americans, some of whom have committed relationships to their partners and who have suffered because when one was sick, they couldn't have that person by their bedside. I don't think that's right.

WOODRUFF: A lot of people give -- more broadly -- the Republicans credit for giving a narrative that they can say in just a few sentences. And criticize the Democrats for so often sounding like a string of policy statements from different interest groups. What, to you, in just two or three sentences, should be the narrative for the Democratic party?

CLINTON: Well, the Democratic party is responsible for most of the progress of the 20th century. It is the Democratic party that fought and stood for democracy and freedom. It is the Democratic party that created the ladders of opportunity that enabled millions of people to lift themselves into the middle class and fulfill their God- given potential. And it is the Democratic party that battered down the obstacles that stood in the way of women and minorities and others, having the opportunity to fully participate in American life.

And I think that if you really look at narrative of the 20th century, we're on the side of the continuing progress on behalf of the American people, and of America's leadership in an effective way at home and around the world. And the Republicans' narrative is really one that wants to turn the clock back. I think our narrative is better. We may not have done as good a job, perhaps, in communicating it and connecting with people, but that doesn't change the facts of what we stand for.

WOODRUFF: Three other quick things. 2006, you're running for re-election?

CLINTON: I sure am.

WOODRUFF: To the United States Senate. Ed Cox has formed an exploratory committee, Republican attorney. He's already saying New Yorkers deserve a senator who is committed to New York and only to New York. If you were asked to pledge, at some point between now and next year, whether you will definitely fill out a six-year term in the Senate, what would you say?

CLINTON: I am focused on winning re-election. That is what I work on every single day, just as I have worked my heart out for the last four years. I think that many people in New York know how hard I've worked. Obviously dealing with 9/11 was a horrific experience and responsibility. I've tried to work throughout the state. I've tried to bring people together from upstate and downstate and from one end to the other. And I'm going to continue doing that every day, and I'm not going to get diverted. I'm going to stay focused on what my job is as the senator from New York.

WOODRUFF: '08. When do you have to make a decision?

CLINTON: Oh, I'm not even, you know, remotely considering that. My view is that, you know, life unfolds at its own rhythm. You know, I have never lived a life that I thought I could plan out. And I'm just trying to do the best I can every day. I find I have a lot to get done between the time I get up and the time I go to bed. And obviously, it's, you know, it's very flattering, I guess, for people to feel that way, and I appreciate it.

But, you know, I'm focused on '06. I'm trying to do the best job I can. I care deeply about these issues that we're fighting out here in the Senate, which I think are going to determine what kind of country we're going to have.

(END VIDEOTAPE)

WOODRUFF: Senator Clinton reacting to a poll number. More than 50 percent of Americans say they were very likely or somewhat likely to vote for her for president in '08. By the way, the senator declined to comment about the trial in California over 2000 Senate campaign finance director.

Today, jurors did begin deliberating the case against David Rosen. He's accused of underreporting the cost of a star-studded fundraiser for Mrs. Clinton's Senate race four-and-half years ago.

Another showdown in the Senate. Coming up, an update on the fierce fight over John Bolton, the president's pick as ambassador to the United Nations.

Plus, selling Social Security. I'll talk with Treasury Secretary John Snow, who's a key player in the president's push for reform.

(COMMERCIAL BREAK)

WOODRUFF: I asked Senator Clinton about Tom DeLay a moment ago. It turns out there's new ammunition today for his critics. A Texas judge has ruled that the treasurer of a political committee formed by the House majority leader broke the law by failing to report hundreds of thousands of dollars in campaign contributions. Our congressional correspondent Joe Johns has more on the ruling and what it may mean politically. Hi, Joe.

JOE JOHNS, CONGRESSIONAL CORRESPONDENT: Hi, Judy.

Certainly another headache for Majority Leader Tom DeLay, now that a judge has ruled that a political action committee he set up called Texans for a Republican Majority, TRMPAC for short, failed to report hundreds of thousands of dollars it took in and spent in violation of Texas law.

TRMPAC was set up to help Republicans win state offices after the 2002 election. Five Democrats filed suit. Now, the treasurer of TRMPAC, Bill Ceverha was named as the defendant. In a long awaited decision today in the form of a letter, Judge Joseph Hart (ph) ruled in the civil case. "The issue generally is whether Bill Ceverha as treasurer of TRMPAC failed to report certain political contributions and expenditures as required by state law. There is no question that some funds received and paid for by TRMPAC were not reported; the question is whether they should have been."

TRMPAC, of course, argues that the money in question was for administrative expenses, didn't have to be reported. The judge said that $532,000 in corporate contributions were not, in fact, to finance the administration of the committee and should have been reported by the defendant. The money was, in fact reported to the Internal Revenue Service.

DeLay denies wrong-doing for his part. He has consistently said he didn't have anything to do with the day-to-day operations of TRMPAC. CNN Hill producer Ted Barrett caught up with DeLay earlier today and asked him about the significance of the ruling.

(BEGIN VIDEO CLIP)

TED BARRETT, CNN HILL PRODUCER: Mr. DeLay, do you have anything against (ph) the TRMPAC ruling today?

REP. TOM DELAY (R-TX), MAJORITY LEADER: Not for me, I'm not part of it.

(END VIDEO CLIP)

JOHNS: Now, the attorney for the treasurer, Bill Ceverha, also released a statement from Texas today, Terry Scarborough, saying in part, "We feel strongly this decision is wrong. We will vigorously appeal this ruling immediately if [the judge] allows us to. Our client was exercising his constitutional rights of freedom of speech and freedom of association. These are the most fundamental constitutional rights that we, as citizens, enjoy and cherish."

Of course, what does it all mean? DeLay's critics say it's another big problem for him, especially because there is an ongoing criminal investigation in Texas. Three of DeLay's associates have been indicted there. Some Republicans suggesting all just this might embolden Ronnie Earl (ph), the prosecutor who continues to investigate.

We did talk to a Republican elections lawyer, Yan Barren (ph), who also points out that the one thing that's very important for the public to realize is that there are different standards in civil and criminal cases. It's an issue of a preponderance of the evidence versus reasonable doubt. So, a long way to go here. DeLay, of course, continues to deny wrongdoing, and we'll have to see where it goes. Judy?

WOODRUFF: Joe Johns at the Capitol. Joe, thank you very much.

Some top Democrats are urging fellow party members in the Senate to vote against closing debate on John Bolton's nomination to be ambassador of the United Nations. They argue that the final vote on Bolton should be delayed until they see documents relating to the nomination they requested months ago. Bolton's temperament and leadership skills have been fiercely debated.

(BEGIN VIDEO CLIP)

SEN. EDWARD KENNEDY (D), MASSACHUSETTS: United Nations is the one and only organization through which the nation of the worlds can link their unique strengths in a realistic hope of building a peaceful future for all humanity. We need a representative at the United Nations who supports that vision and is committed to that future for us all. John Bolton is not the person for that job, and I urge my colleagues to vote against him.

SEN. JOHN MCCAIN (R), ARIZONA: The United Nations needs the presence of a tough, hard, dedicated individual that has been already, already been confirmed in various posts four times by this body.

(END VIDEO CLIP)

WOODRUFF: If Republicans can't overcome Democratic opposition and win the vote tend to debate, they believe they have enough votes to confirm Bolton to the U.N. post.

Well, the next U.N. ambassador will, of course, inherit the ongoing challenges involving U.S. policy in the Middle East. Earlier today President Bush met with Palestinian Authority President Mahmoud Abbas at the White House. Mr. Bush announced the U.S. will give the Palestinians $50 million in direct financial aid, the first time that U.S. dollars have gone directly to the Palestinian authority. The president also urged Abbas to continue his efforts to end the violence in the Palestinian territories.

From the fight over filibusters to the battle over stem cells, is Republican party solidarity cracking? I'll get the take from the right and the left when we return.

Plus, the Defense Department says there is no evidence that the Koran was mishandled by interrogators at Guantanamo Bay. We may hear more at top of the hour when the Pentagon briefs reporters and we'll have live coverage.

(COMMERCIAL BREAK)

WOODRUFF: It's a little before 4:00 on the East Coast, and as the markets get set to close on Wall Street, I'm joined by Kitty Pilgrim in New York with "The Dobbs Report." Hi, Kitty.

KITTY PILGRIM, "THE DOBBS REPORT": Hi, Judy. Thanks.

We had some solid economic news and that sent stocks a bit higher, so right now the Dow Industrial's about 79 points higher, NASDAQ gaining 1 percent. The economy grew at a healthy three-and-a- half percent annual rate in the first quarter. That is faster than the government's earlier estimate of 3.1 percent.

Well, there is more trouble at the insurance company AIG. New York Attorney General Eliot Spitzer has filed a civil lawsuit against the firm and its former top executives. The suit alleges AIG improperly boosted results and lied to regulators and investigators. And through a separate internal investigation, AIG has already uncovered nearly $3 billion in improper accounting.

The FBI is investigating yet another theft of personal information. And this time the breach is at Stanford University. It happened about two weeks ago when someone outside the university gained access to the school's computer network. Personal information -- including Social Security numbers -- of nearly 10,000 people was stolen.

Coming up on CNN, 6:00 p.m. Eastern on "LOU DOBBS TONIGHT" -- well, in case you haven't noticed, America's roadways have deteriorated sharply over the past five years. In fact, a new study finds many cities are dealing with substandard conditions.

(BEGIN VIDEO CLIP)

FRANK MORETTI, TRIP: Local governments and state governments over the last few years, because of the tremendous fiscal problems they've had, have started to shift a lot of the highway dollars to other parts of the budget.

(END VIDEO CLIP)

PILGRIM: Also tonight, "Broken Borders." A speech by an activist in the Minuteman Project sparks violent protests. We'll have a special report on that.

Plus, a new study finds security at our nation's borders is dangerously ineffective. And we take a look at high risk containers. They are slipping through without inspection.

And more lawyers -- lawmakers are calling for fair trade with China. We'll have a special report on that.

All that and more, 6:00 Eastern on "LOU DOBBS TONIGHT." But for now, back to Judy Woodruff -- Judy.

WOODRUFF: Thank you, Kitty. And we'll be watching.

And now back to INSIDE POLITICS. As we near the end of a volatile week on Capitol Hill, Democrats and Republicans are busy adjusting their tally of wins and losses. As we heard earlier, Senator Hillary Clinton echoed the line taken by many Democrats that the 11th hour compromise of judicial nominees was largely a win for the Senate as a whole.

Is Senator Clinton sounding presidential? Are Republicans feeling split? With me now, former Gore campaign manager Donna Brazile and Bay Buchanan, president of American Cause.

I want to ask you both about something that Senator Clinton said. She said she was feeling ambivalent about this compromise, about what was right for the country in terms of compromise or going ahead with the showdown over the filibuster -- Bay.

BAY BUCHANAN, AMERICAN CAUSE: She clearly didn't want to take a position. It's quite obviously, she wasn't sure how this was going to work out. And she wasn't going to risk going out in front on it. So, it was smart politics on her part not to get involved with it. And we'll see what happens, though, because she wants to be a leader, she is going to have to start leading.

DONNA BRAZILE, FRM. GORE CAMPAIGN MANAGER: She is absolutely right. I mean, this so called nuclear option wasn't detonated. But look, on the other hand we know that Democrats are now in this position where they cannot object to these bad nominees.

The fact is, is that Pryor, Brown and Owen are radical, ultraconservative judges, and they should have been filibustered. And I can totally understand her position. I'm upset because these judges position's on civil rights, on consumer rights, on labor rights, on women's rights, they are still out of the mainstream of America. And therefore, I wish Democrats would have preserved the right to fight the Republicans to the bitter end. That's my position. I don't have to go the party line and do the spinning thing.

BUCHANAN: And you did it well. And you said that you can understand her position, but see, she didn't have a position. That's what she said. She didn't have a position.

And I think that's a problem in the long run. It certainly is not now for Hillary. But she's a smart and she's articulate, she's very smooth. And I believe she is without question presidential. But if she is too cautious, too over coached -- and I think there comes across -- she lacks the natural ability to relate to people because of that.

BRAZILE: She took a position with Newt Gingrich on healthcare. She took up a position with Lindsay Graham on preserving GI's pay and benefits. She's taken a position with Santorum on indecency in the media. She's taken a lot of strong positions. And we have got to give her credit for that.

BUCHANAN: Safe ones.

WOODRUFF: Let me ask you more broadly. You have got the compromise, but on the other hand, when it came time for voting for the nominee Priscilla Owen, the Senate split largely along party lines. It was 55 to 43. Do we have a deeply divided Congress? Or, you know, or are these moderates going to hold sway in the future?

BUCHANAN: You know, I think what is going to happen here -- and I don't even understand how they can even consider this would be a working plan. Because we are going to put up those three judges. And Frist is smart, he's going to call on the president and say send us some more. And we're going to put those through. And we're going to keep pushing this and until finally we get a judge that we really can sell as somebody who is very reasonable and qualified and the Democrats are going to say, no, we're going to filibuster. And we're going to go back to where we were. BRAZILE: For this time, Judy, we preserved the constitutional system of checks and balances. But the truth is that this fight is not over with. We -- the Republicans will continue to put up ultra conservative judges. And Democrats and liberals and progressives are liable to continue to fight against these judges. And perhaps some moderate Republicans will join us in this fight.

BUCHANAN: The key is the judges are the ones that the president told the American people he would be putting up. These are the kind of people he said. And he won election for saying that.

BRAZILE: 48 percent of the American people deserve a voice in this discussion and debate.

WOODRUFF: Bay, the Republican Party right now -- you had these moderate Republicans, Senator McCain and others, who worked on this compromise clearly splitting with the rest of the party, with the White House. You have also got on stem cells a clear disagreement among Republicans. How fractured is the Republican Party?

BUCHANAN: They are clearly fractured on stem cell. I mean even have pro-lifers who are voting for the stem cell research. That's a clear division. But that's something that's deep -- it's deep seeded in their beliefs, but it's not going to hurt the party in the long run.

I'll tell you, though, on judges they are not split. In that group, you have two conservatives, DeWine and Lindsey, who I'm sure, I can assure you, are hearing from their constituents. They are outraged. I understand there's just such furor out there in Ohio that's it's hard to even articulate how angry they are.

And so I think they are going to start saying, and they have -- I saw them on television saying -- well, you know, this means all conservatives can get through. It's not an extreme to be a conservative. You're going to see, they are going to start voting with the Republican majority if they want to keep their seat.

BRAZILE: Well, on stem cells, they did the right thing. This is about saving lives. These embryos, you know, will be destroyed anyway. Why not use it to advance the cause of science in our country. We are so behind in every -- on broadband technology. We're now behind in scientific research. We need to allow the Senate to vote on these measures and the president should withdraw his veto threat.

BUCHANAN: The president did such a terrific thing. He put a face on his position -- on our position, I might add, against this -- the embryo being destroyed. You saw the face of babies. Those embryos were adopted and lo and behold, they're beautiful little children.

BRAZILE: And we also have a face, and that face was Arlen Spector. And he put his own face out there. And I think it's important to understand, if it can save lives, let's go for it.

WOODRUFF: A serious subject. We thank you both, as always. See you next week.

BRAZILE: Have a good Memorial Day.

WOODRUFF: Thank you. And to all of us.

So, an economic indicator is up today, but the president's poll numbers are down. Up next, the bottom line on the Bush economic policy and the public perception of it. I'll talk with Treasury secretary John Snow.

Also ahead, is Governor Schwarzenegger choosing his battles wisely? Our Bill Schneider looks at how the punches have landed.

And, when we go inside the blogs, more on questions about the Koran and whether the Muslim holy book was desecrated by U.S. military guards.

(COMMERCIAL BREAK)

WOODRUFF: California Governor Arnold Schwarzenegger is waging political battles on multiple fronts in the Golden State, and a new poll finds the showdowns may be taking a toll on the governor's standing with the public. We'll get more now from our senior political analyst, Bill Schneider.

(BEGIN VIDEOTAPE)

BILL SCHNEIDER, SR POLITICAL ANALYST: California Governor Arnold Schwarzenegger has come out fighting this year. Protesters are fighting back.

UNIDENTIFIED FEMALE: Hey, hey, ho, ho, Schwarzenegger has got to go!

SCHNEIDER: The governor defines the battle lines this way, the governor and the people against the special interests. There's only one problem: the people are not with him. Governor Schwarzenegger's current job approval rating, 40 percent in a poll by the Public Policy Institute Of California, down from 60 percent in January.

How bad is that? It's just as bad as President Bush's job rating in a state that has never voted for President Bush. Schwarzenegger has picked fights with nurses, teachers, police, firefighters and public employees.

GOV. ARNOLD SCHWARZENEGGER (R), CALIFORNIA: This is going to be one big political fight and you all know it. This is a battle of the special interests versus the children's interests. Which will you choose?

SCHNEIDER: Teachers have been fighting back. They have been running ads accusing the governor of reneging on a promise to restore $2 billion in education funding.

UNIDENTIFIED FEMALE: But then he borrowed $2 billion from the education budget... UNIDENTIFIED FEMALE: ...and now refuses to pay it back.

UNIDENTIFIED FEMALE: That's money our schools need to reduce class sizes and keep quality teachers.

SCHNEIDER: The governor says he never promised to pay the money back this year, and anyway, he hasn't got it, and anyway, funding for education has increased. Then, he went a step further. He accused educators of, quote, "right out lying." Who's winning this fight? Schwarzenegger's rating on handling education is 29 percent.

The governor wants to call a special election this November so the people can vote on initiatives to curb the power of special interests. Do the people of California want a special election this year? No. They'd just as soon wait until next year when regular elections are scheduled, a point protesters were making in the governor's face this week.

SCHNEIDER (on camera): Governor Schwarzenegger is picking too many fights. He's picking them with the wrong adversaries and people wonder, why does he need to pick fights in the first place? Is that the best way to solve problems?

Bill Schneider, CNN, Washington.

(END VIDEOTAPE)

WOODRUFF: Thank you, Bill.

Back here in Washington, the Commerce Department reports that the U.S. economy grew at a solid 3.5 percent annual rate in the first quarter of 2005. Now, that is a better showing than first thought, although it is slightly down from the last quarter of 2004.

With me now from the White House to talk more about the economy and the Bush administration policies, Treasury Secretary John Snow. Mr. Secretary, good to see you.

JOHN SNOW, TREASURY SECRETARY: Hey, thank you, Judy. Good to be back with you.

WOODRUFF: Thank you.

You did get this good news today about how the economy grew in the first quarter, but in the last week some news about unemployment insurance claims up about a thousand, last month. The price of oil hit a new closing high. Are you feeling good or are you worried right now?

SNOW: Well, over all we're feeling very good. Those growth numbers for first quarter, that upward revision, was positive. It came because exports were so strong, which means improvement in the trade balance picture. The numbers were good on compensation levels, a nice pickup. Inflation remains low. So, over all, we're in a good recovery. The picture looks good and promising, and I think it will continue to be that way. WOODRUFF: We have a poll we've done very recently, Mr. Secretary, a CNN/"USA Today"/Gallup. Fifty-eight percent of Americans right now are saying they disapprove of how President Bush is handling the economy and that is worse than the 53 percent in the month of April. Does the president need to do more to convince American people -- the American people he's on the right path when it comes to the economy?

SNOW: Well, I think we just continue to focus on the fundamentals of what makes the economy work, high productivity, low inflation, job creation, corporate profits high.

No, I think if we continue focusing on what is important, including pushing through things like an energy policy to bring energy prices down and good trade agreements like the CAFTA agreement, that will all tell in the works and the results will be good for the American economy and good for the American people and they'll realize it.

WOODRUFF: Why do you think that perception is out there, though?

SNOW: Well, I'm not good at reading polls.

WOODRUFF: All right. OK.

SNOW: And, I guess, polls point in all sorts of different directions.

WOODRUFF: Let me ask you about Social Security. You've been out there working very hard to sell the president's reform plan. But, again, we -- you look at public opinion, you talk to people all over the country -- there is still a good deal of concern about the president's proposal for private or so-called personal accounts. Is it time for a retooling of the president's proposal?

SNOW: Well, we're engaged in this major education program with the country and dialogue with the Congress and dialogue with the country. No, not at all, Judy. The fact is that right now the House Ways and Means Committee is holding hearings pointing to a mark-up. Chairman Grassley in the Senate is holding hearings pointing to a mark-up. We in the administration are engaged in conversations daily with members of the House and the Senate from both sides of the aisle, and I think we're making good progress, and I think you will see that reflected in legislation coming out of both House Ways and Means and Senate Finance later this summer.

WOODRUFF: Well, you mention Ways and Means. As you know, the chairman of the House Ways and Means Committee, Bill Thomas, has put together a proposal that's quite different from the president's when it comes to reforming Social Security. Is Congress headed in a different direction?

SNOW: No, I think Congress is headed in the same direction. They're headed towards a fix for Social Security that puts it on a sound financial basis that deals with the solvency issue, and they are on a course to deal with the larger issue of savings, and the fact we're an aging society. I think you are going to see this all coming together in historic legislation later this year.

WOODRUFF: Very quickly, Mr. Secretary. The man the president credits with developing this plan to use personal accounts with Social Security, Robert Posen -- he is now saying the president's plan to let workers divert up to about a third of their payroll taxes to private accounts, in his term -- in his words, would reduce tax revenues and lower guaranteed retirement benefits too much. What do you say to that?

SNOW: Well, I think Mr. Posen is an important participant in the debate. He's put forward some good ideas, and the progressive indexing is an idea that looks like it's gaining a broad, uh -- broad adherence. But there are a lot of other ideas out there, as well and we're looking for a climate of ideas in which the best ideas come to the forefront and in the end, the best ideas, I'm convinced, will include the president's personal accounts.

WOODRUFF: And you don't sound discouraged.

SNOW: No, I'm not. I'm encouraged, actually.

WOODRUFF: OK. Treasury Secretary John Snow. It's very good to have you on the program.

SNOW: Hey, thank you.

WOODRUFF: We appreciate it.

SNOW: Good to be back.

WOODRUFF: Thank you.

A celebrity visitor at the State Department when we return: U2's front man takes time out from the road to talk policy here in Washington.

(COMMERCIAL BREAK)

WOODRUFF: We turn to the political future of Florida Congresswoman Katherine Harris in today's "Political Byte." Harris met yesterday with Republican Senator Elizabeth Dole who is heading GOP efforts to elect more Republicans to the Senate.

Harris, who is considering a race against Democratic Senator Bill Nelson next year, is known to have met in the past with the president's senior adviser, Karl Rove.

The Census Bureau has released new statistics about Election Day 2004. The government found Minnesota had the highest voter turn out at 79 percent, while Hawaii was the lowest with 50 percent. Nationwide, 65 percent of women turned out to vote while 62 percent of men cast a ballot, continuing a trend we have seen.

Meanwhile, rock singer Bono of the band U2 slipped away from a concert tour stop-over in Boston to meet with Secretary of State Condoleezza Rice yesterday here in Washington. Bono of course is well known for his political activism on global issues ranging from AIDS to Africa debt relief.

We're going to check in on the blogosphere next. The online community is keeping close tabs on the allegations involving abuse of the Koran. We'll find out what people are saying next when we go inside the blogs.

(COMMERCIAL BREAK)

WOODRUFF: A quick program note. First, CNN will be having -- carrying live coverage of the Pentagon news conference coming up in about 15 or 20 minutes from now of how U.S. guards treated Muslim prisoners and treated the Koran at Guantanamo Bay, Cuba. Again, that's coming up in about 15 or 20 minutes.

Meantime, allegations about mistreatment of the Koran, a big topic online today. And we check in now with CNN political producer Abbi Tatton and Jacki Schechner, our blog reporter. Hi, Jacki.

JACKI SCHECHNER, CNN BLOG CORRESPONDENT: Hey, Judy.

New FBI documents that were made public yesterday alleged new allegation regarding prisoner abuse. And the question on the blogs, does this vindicate "Newsweek?" Well, depending on who you read, not necessarily. "Newsweek" did make errors in journalism, but the new reports may add a little weight to the substance of what "Newsweek" were saying.

Over on the left at Dailykos.com, it turns out "Newsweek" was wrong about the source, right about the story. Similar posts from Oliver over at the Liquid List saying "Newsweek's" mistake is it didn't use the mountains of available evidence that would have given the story credibility and would have protected the magazine from the people trying to destroy it.

ABBI TATTON, CNN POLITICAL PRODUCER: And you are seeing comments like that, not just from the left, this is Andrewsullivan.com here. He's pointing to countless claims of abuse now. And saying that we can be grateful for Scott McClellan for one thing, he dared the press to provide substantiation for the "Newsweek" claim. We have now got it. Will administration defenders finally concede we have a problem?

Well, the administration defender is not doing that on the blogs. Over here at Powerlineblog.com, big conservative site. We mention it a lot, because it's highly trafficked, very well read. "Today's Misleading Headline Award" is the post here. Saying the people on the left want the "Newsweek" story to be true, but actually the reports today are old news that such accusations have been made by detainees along with other implausible claims has been public knowledge for a long time.

Also over at USS Never Dock here -- this is another conservative site -- saying the same kind of thing. "The Koran Not Flushed," it's just the lefties in the world want the story to be true, it's not.

SCHECHNER: Something that is true, according to Kevin Drum over at Washingtonmonthly.com, his political animal blog, is that all the critique of the media is diverting attention away from the meat of the matter. He says, instead of focusing on which source that the Koran allegations came from, we should be focusing on President Bush's disastrous policies that are responsible for what's is happening in Afghanistan, more specifically the White House's disastrous policies, he said.

Also similar post at the Mahablog. It's Barbara O'Brien. And she is a little more specific blaming the right saying that the way that they fight the arguments is they will nitpick a point and they'll just beat it to death and it'll take away from the larger picture.

TATTON: Right. They point out one person here, this is Balloon Juice. This is John Cole, a conservative Republican, who is -- has a reasonable post. He's looking at all the sides here. And just saying with all the accusations out there, it's not that unreasonable to think that maybe some of this did happen.

The post is "How About Them Apples" if you go down here, scroll down to beneath the picture. While they, the accusers, might be lying, most of the evidence would lead us to believe some level of what they are saying is true. This doesn't mean he hates the military. This doesn't mean he hates the U.S. He just says it does mean I've looked around and I see what I see.

SCHECHNER: We're going to run out of time here in just a moment, Judy. But what we wanted to do was pull your attention to a story about a woman who is being imprisoned in Indonesia and her name is Chapelle Corby. And it's a story that they've been following on the blogs. And we just wanted to bring it to you.

This is Talkleft.com. This is the blog of Geraline Merritt (ph). She's an attorney. She's been following the plight of this woman, Schappelle Corby, a 27-year-old who is in Australia -- from Australia who has been awaiting a verdict in her case. It's coming down later on today. There's a great lot of links to Australian bloggers. Some live bloggers, reporters who are going to be there in Indonesia as the verdict comes down. Talkleft.com, a great site, and we'll be following that one.

Back to you, Judy.

WOODRUFF: So interesting to be able to follow something like that that we might not see otherwise in the media.

All right. Abbi, Jacki, thank you both.

That's it for INSIDE POLITICS this Thursday. I'm Judy Woodruff. "CROSSFIRE" starts right now.

END

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