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State of the Union: Best Political Team on Television

Aired June 28, 2009 - 11:00   ET


KING: On the eve of a major deadline in Iraq, the turnover of security in the big cities to Iraqi forces. The commanding general of U.S. forces says he's optimistic, but General Ray Odierno also shares with us his biggest worry.


GEN. RAY ODIERNO, COMMANDER, MULTI-NATIONAL FORCE, IRAQ: I think it has to do with if we see a breakdown in stability in Iraq, if we see a consistent increase in violence, if we see that the Iraqis security forces aren't able to respond, if we have some event that has caused some instability, then that would cause us to maybe, after we're asked by the government of Iraq, to help. I don't see that right now. I believe we're on the right path.


KING: Here as home, a contentious Sunday debate over health care reform, especially how to pay for it.

During the campaign, candidate Obama promised not to raise taxes on the middle class, but now a top adviser to President Obama won't rule that out.


DAVID AXELROD, SENIOR ADVISER TO THE PRESIDENT: He's very cognizant of protecting people -- middle-class people, hard-working people who are trying to get along in a very difficult economy. And he will continue to represent them in these talks. But they're also dealing with punishing health care costs. And that's something that we have to deal with.


KING: On health care and in the debate on energy and climate change, Republicans warn the president and Democrats in Congress are on a dangerous path, spending money the government doesn't have and increasing the government's reach into everyone's lives.


SEN. MITCH MCCONNELL, R-KY., SENATE MINORITY LEADER: The real question is, do you want to do something that is so comprehensive that requires this kind of cuts to Medicare and to seniors, and to all of these tax increases, when we could target the things that are askew in the system and fix them without this kind of massive overhaul.



GOV. TIM PAWLENTY, R-MINN.: To have the government come in and say, we're going to compete directly with the private market is another example of the partial, you know, nationalization of an industry, not unlike the mortgage industry, the banking industry, the auto industry, now the health care industry. Soon you'll see that in the energy industry.

This is a pattern with this administration of government encroaching into the private market.


KING: As you can see, we've been watching all the other Sunday shows so you don't have to.

Let's bring in the best political team on television, as we do every Sunday at this hour, and break down the issues.

Joining me here in Washington, seen only here on "State of the Union," Democratic strategist and CNN political contributor James Carville and Republican strategist and CNN political contributor Mary Matalin.

Welcome. Happy Sunday.

MATALIN: Good morning, John.

CARVILLE: Good morning. Good morning.

KING: Let's start with David Axelrod's comment on taxing health care benefits.

The president, in the campaign, said it was a bad idea. Just two weeks ago Vice President Biden and Secretary Sebelius were out trying to slam the door shut on that, but a lot of wiggle room, there, James, from David Axelrod, saying we don't want to do it, but -- but we have to deal with the punishing costs of health care reform. Why open that door?

CARVILLE: Because, in the Senate Finance Committee, Senator Grassley is making that a condition of moving the bill with some Republican votes.

Obviously, the administration may have to go along. They're going to try to keep it as far away from the middle class as they possibly can, but the price that the Republicans are extracting is that they want to tax these benefits pretty far down the line.

I think, if the administration can protect 80 percent of the health care benefits from taxation, they'll do all right, in the so- called "Cadillac plans." But that's what happened is the reality of the constitution and the politics is, is the Republicans are insisting that these benefits be taxed, and we'll see where it goes, if there will be some compromise.

KING: Before you jump in -- before you jump in, I want everyone to hear from the voice James just mentioned. He said -- Senator Grassley -- Senator Grassley has said he would like to work on a bipartisan bill.

And James is right. He says he thinks, to come up with all this money, you're going to tax health care benefits, but he also made clear today that Republicans aren't going to do this for the Democrats, that if they're going to have those tax increases to pay for it, that President Obama himself is going to have to get his hands dirty.


SEN. CHARLES E. GRASSLEY, R-IOWA: My view and the view of a lot of other Republicans, since the president denigrated John Cain's -- John McCain's effort to move in this direction during the campaign, it's going to take, in order to win over Republicans, presidential leadership in that direction.


KING: Mary, do you want Chuck Grassley saying, let's open the door to higher taxes on health care benefits, as long as the president helps us?

MATALIN: It doesn't matter what I say or what Chuck Grassley thinks. You can look at any poll. The new Republic Resurgent poll, is out, which is the Resurgent Republic answer to the DCorps (ph) poll, a very serious poll, people do not see overhaul of the health care system, right now, to be a priority.

Yes, the costs are high, and they want reform, but, by 2-1, they would rather not do it by raising taxes or increasing the deficit. And 80 percent of the middle class that David says the president's going to protect like the health care that they have.

So this is -- the whole notion of doing all of this before we fix Social Security, before we fix Medicare, while the deficit is completely out of control, is what's going on outside the Beltway.

And whatever they're talking about in committee, at some point, has to connect with reality. And the reality is they're not -- no one's going to support taxing benefits or raising taxes to get 46 million -- and that's a bogus number -- insured.

CARVILLE: Right, well, there's the difference. The president thinks that we do have to do something about health care. He's very committed to it. He wants to do something now. Resurgent Republic -- other Republicans, other conservatives said there's no crisis here; let's just do other things and we'll get around to it. That's what, sort of, politics is about. Again, in order to get something done, the Republicans, in the person of Senator Grassley, who, much to his credit, is very up-front about it, that they think it's a good idea to tax these benefits.

I think that the Democrats are going to try to negotiate taxing as few of these plans as possible. But I suspect, if this thing is going to come out, it's going to come out looking something like that.

KING; Well, one of the reasons they may need those Republican votes, at least in the Finance Committee, is because we have seen, in the recent weeks, a bit of a civil war among the Democrats, questioning the public option, questions whether you should have regional co-ops, questioning whether the government can afford all this at once like this.

And into this debate, now, comes the Republican National Committee, with what we might call the first television ad of the 2010 cycle.

You remember, James -- and you're laughing, here, on the set...



CARVILLE: ... Harry and Louise.

KING: You remember Harry and Louise. You remember your friend President Clinton's health care plan was doomed once this turned into a TV ad war and got contentious. Let's listen to the RNC ad.


ANNOUNCER: President Obama talks about a, quote, "public option." When he says "public option," that means putting government bureaucrats in charge, instead of patients and their doctors.

It's a bad idea. Tell President Obama to work with Republicans and to stop rushing into another government takeover.


KING: You have a Democratic president; you have a Democratic House; you have a Democratic Senate. I guess the question on the table is, are they beginning to lose control of the health care debate?

MATALIN: Well, the first Harry And Louise, lo those many years ago, there was 15 percent more support then, 15 years ago, for overhauling the health care system.

So there's not even this -- people are not in the crisis mode about this. And if it was such a crisis, which is what we're being able to see this Obama pattern of saying something's a crisis -- if it was such a crisis for Democrats, why did the they stall, obstruct and get in front of every health ware reform effort of the Republicans for the last decade?

And if the Republicans sign on to anything right now that's not undergirded by choice and competition and innovation and incentives, they will be signing a suicide pact. And they're not going to go there.

And the inherent problem for all of this is those Democrats who think, increasingly -- again, Resurgent Republic show, and independents think like that, all those seats are up in 2010. So Obama can get these Pyhrric victories like the energy kneecapping he did this weekend, but those guys have got to run in 2010. He's going to lose seats on these.

CARVILLE: Again, you see -- and this is -- the Republicans are going to turn around and say there's nothing wrong with health care; there's no crisis; the president says there is; we need action.

And that's -- I think that's a choice that they're comfortable with. I think that's a choice that the Democrats are comfortable with. As this thing...

KING: Let me interrupt you. You frame the debate like that, but will enough Democrats, Democrats on the battle in 2010, if they start to feel this heat that we can't afford it, that the public option's too much government?

CARVILLE: One of the things that we don't point out -- and I was there in '93 -- the Republican party is almost twice as unpopular today than it was in 1993. It's hard to remember the Republican Party actually had credibility in 1993. Right now, they're held in the lowest esteem of any political party in modern polling.

So the Democrats don't so much need to, kind of, fear that. Oh, you're going to lose -- sure, we've got, you know, 60 Democratic senators. There's a lot of variation. There's a lot of things. There's plenty of things that the president has at his disposal. He's going to have a very busy summer. These votes are just not going to come to him. He's going to have to politick hard for them. He's going to have to get out there and push hard.

And the outcome of this thing is still in doubt -- I would agree with that -- but I think that the weight is that people are looking for some substantive changes here.

I think people like Senator Grassley, Senator Baucus and those -- they're working day and night inside that Fiance committee. And it's going to be a compromise. There's no doubt about that. But let's wait and see where it goes. There's a -- as they say -- as they say in the pool halls, there's lot of green between here and there.


MATALIN: The reason that Republicans -- it is true, the statistic he's citing -- are held in such ill repute is because they stopped behaving like conservatives. James always conveniently neglects to note that all polls show a resurgence of -- while Republicans are at an all-time low, conservatism, isms and people who identify with it, are at an all-time high. So it is not consistent with a center-right philosophy, which this entire nation, including increasing numbers of independents support, to have a taxpayer-funded, government-controlled health care or energy policy.

And it is true, when Obama throws out these big, big aspirational goals, everyone supports them. You can go to any poll and go inside. When you look at the details, there's not one aspect of any of the these policies, the deeper you go, that are supported by any majorities. And Democrats have to run in that environment.

So you can call it a crisis, but you have to deal with reality at some point.

KING: Let's -- let's get a context of where we are. The 1993 health care debate, without a doubt, gave us the framework of the 1994 midterm elections, part of it. Republicans had huge gains.

The 2009 health care debate and other Obama agenda items, already framing what I think we will see in 2010. The White House says Republicans are the party of inaction; they're the party of no. And leading Republicans, including the Minnesota governor here earlier today says, Obama and the Democrats are the party of more government.


PAWLENTY: The president said not long ago in an interview, quote-unquote, "we are out of money." With all due respect, Mr. President, if we're out of money, quit spending it.

I'm concerned also about this massive government encroachment in autos, in health care, in energy and other sectors. But, you know, President Obama inherited a very tough situation, I think we need to give him more than six months before you can make an ultimate verdict on how he is doing.


KING: Well, a bit of kindness at the end there from Governor Pawlenty. But no question, he thinks the government is spending too much now trying to reach so much. You both have been very successful running campaigns, giving advice to candidates in the past. I want each of you to put your party, James the Democrats and Mary the Republicans, it is early, the 2012 election is still down the road, but does your party, James, and does your party, Mary, have to make any adjustments now based on where the debate is?

CARVILLE: Yes. I think, look, you're going to have to adjust a lot. You're certainly going to adjust your position on health care as it winds its way through the legislative process. The same thing with the energy bill. I'm sure it's going to be the same thing with the regulation bill that Congressman Frank is marking up right now.

But on all of these things, and I would ask any student of history, anybody that knows what presidents have done, I have no earthy idea, if you're concerned about the deficit, why you would vote Republican, because there is no evidence that Republicans produce lower deficits than Democrats.

In fact, all of the evidence is to the contrary, that Democratic presidents have been much better on these fiscal issues than Republicans have. So if you look at history, I think the Democrats are on very good ground.

And by the way, if you look at the polls, people have recognized that over the years.

KING: You don't have to saying anything if you just want to give him that look. MATALIN: I'm not giving him a look. It's just this deficit that this president has produced in five months exceeds -- quadrupled any deficit that President Bush ever had fighting wars and all of the rest of it, and coming into a recession.

What Republicans need to do, and they are increasingly doing it, is be the proud party of no, no to this, and yes to the alternatives that they have had on the table for a long time.

Again, going to health care, but most of the policies, to have them be undergirded by competition, by innovation, by incentives, by choice, that's how this country grew. And they have to talk more about that.

They have the plans. They have the policies. They know them. They're smart. There was a contingent of new congressmen at our house last night on coastal restoration. These guys really know how to lead.

So they shouldn't be -- they shouldn't feel hesitant about saying no to this and yes to where we are. And they should remember this fact: 80 seats that Democrats are sitting in right now were won by George Bush or John McCain.

Those are seats that Rahm Emanuel, ironically, went out and recruited centrist and conservative Democrats. If Republicans can be who they really are, they can beat centrist Democrats.

KING: A quick time-out, quick time-out, I know it's hard, but let's take a quick time-out. We'll be right back. Much more of our conversation with Mary and James. Stay with us.


KING: We're back with two of our favorite political veterans, CNN contributors James Carville and Mary Matalin.

I want both of you to weigh in on the big drama in Republican politics, and to some degree in national politics this past week. Governor Mark Sanford of South Carolina was missing, his staff said, oh, he's just hiking on the Appalachian Trail, don't worry, he'll be back in a few days. Then it turned out he was in Argentina seeing his mistress.

He explained all of this in a sometimes rambling and certainly dramatic news conference. Let's have a little snippet. (BEGIN VIDEO CLIP)

SANFORD: The bottom line is this. I've been unfaithful to my wife. I developed a relationship with a -- what started as a dear, dear friend from Argentina. It began very innocently, as I suspect many of these things do.


KING: Mary Matalin, how big of an impact more broadly on the Republican brand at a time the brand is a little trouble?

MATALIN: Well, it's distracting, sex scandals trump money scandals. And so we're distracted from Rangel's tax evasion and Murtha's suspect diversion of taxpayer dollars to his district. But scandal -- any scandal trumps substance.

And as we've been discussing, the Republicans are getting traction, if not in their name, by their very conservative principles and the policy application of them. So it's a distraction.

Is it dispositive? No, I go back to those 80 seats. And really, I don't think anybody in 2010 is going to say on those 80 seats, well, I was going to, but since the Democrat betrayed what I voted in the first place, I was going to vote for him, but I'm not now because a governor last year in a different state cheated on his wife. That's just not how voters think.

KING: James, I want to go back in time for painful reasons, but when Monica Lewinsky emerged in the Clinton administration, the first reflex of many in this town was, he's going to have to resign, there is no way. Is Mark Sanford going to have to resign or is there a way to stay in power?

CARVILLE: I hope not. And by the way, I actually thought that his press conference was very sort of compelling television. And there's a reason that we should not like attack this. It's a reason that airlines don't -- you know, the reason British Air doesn't run out ads they don't fly Air France because they had a crash, because you never know tomorrow when you're going to have one.

So I would prefer to be -- as opposed to leading some kind of hypocrisy, kind of family values, what do we tell the children, I think we can safely put all of that behind us. Because -- and I have no idea, but if I had to guess, there is going to be some Democrats that are going to get entangled in this kind of stuff, because (INAUDIBLE) with his people.

My favorite thing about this though is -- I can't let this go (INAUDIBLE), the RGA passed from a 50-something white guy to a 60- something white guy in Mississippi. I think that was a sort of telling thing about today's Republican Party, is they're putting (INAUDIBLE) to old white guys in the South.

And if this president keeps pushing, he can keep them in that predicament. MATALIN: Haley Barbour, who is the new RGA head, who ushered in the '94 Republican takeover, who is a brilliant reformer, who has experience at every level of government, that should be the essence of the resurgent republic...

KING: Now who was...


KING: Who was Mark Sanford? And I ask in the context of this. Here is a guy, he has a beautiful wife. He has four great-looking kids. He's a governor of a southern state that matters in presidential primaries. And he has angered even many Republicans by being so defiant on holding the line on spending, so much so that Rush Limbaugh lamented after all of this played of what might have been. Let's listen.


RUSH LIMBAUGH, HOST, "THE RUSH LIMBAUGH SHOW": I wonder if Sanford thought that he was going to get away with this? They all do, I gather. He could have been our JFK. Could have had it all.


MATALIN: Rush is so skinny, isn't he? He looks great.

KING: Is that sarcasm, could have been our JFK?

KURTZ: Could have had it all? Or was he somebody you looked at -- if we were having this conversation 10 days ago, was he someone you looked at as a player going forward?

MATALIN: Our JFK has to do some things that JFK, the real one, did, which was he was a supply-sider. He cut taxes, he increased defense spending. He was for -- they like to claim him, but they wouldn't claim any of his policies today. No, our resurgence is going to be based on those very ideas that he represented. It doesn't -- it's helpful if you have a messenger, but it's the message that needs to get right.

KING: James, you talked about the dramatic news conference and what great television it was. One of the things that immediately people seized on, was that unlike some other scandals like this, Jenny Sanford, the wife was not standing over his shoulder. I asked Governor Pawlenty, who was among those who might run for president in a couple of years down the road, I asked Governor Pawlenty about this, and he had this to say.


PAWLENTY: Clearly, there's been damage. Any time you have leading figures who are engaged in behavior that is sad and troubling and hypocritical, other people are going to look at that and say, hmm, they don't walk the walk. And so the words and the actions don't ring true. But it's a sad and troubling situation with Jenny and Mark Sanford. I know them. I'm proud of Jenny for her strength and her commitment to her family and keeping that family together. Frankly I was glad to see her not standing at the press conference like many others have.


KING: Not only was she not standing there, she has also given an interview saying I don't care about his career, and I'll listen to him about whether he can keep our family together.

CARVILLE: Well, Ms. Jenny, she's pretty stout in her own right. She comes from a very affluent family on the north side of Chicago, she finished way up in the class -- I think it was Georgetown, was an investment banker when he met her. This is not some steel magnolia who's totally dependent on the governor for her well being. I hope -- she obviously is very committed to her four boys, and if they work this out, I think we'd all be happy. We love a story of redemption. It doesn't matter what political party we are in. But my guess is that there's a whole lot of reconciling to do, and this woman seems to me to be pretty much her own person, is going to maintain her own dignity and her own self- esteem to all of this, and she's done a pretty good job so far.

MATALIN: You know, this sounds like a Mark Sanford has one and only one job, he has to make those four boys understand that this god awful betrayal has nothing to do with them, that he loves them and he needs to pray that they will forgive him. That's his number one job.

KING: Should he quit to do that number one job?

MATALIN: I can't speak to what -- if he can work and do this at the same time. That should be his number one priority. I think you can work and do that. That is his number one priority. And to my mind, his only road to redemption, his only road to respectfully hanging on to that seat or having any future, is to make those boys understand this wasn't about them.

CARVILLE: To my point is he was certainly not able to financial as a governor as we saw on television. If he recovers emotionally that's fine, I don't think he should resign over a sex scandal, that would be ludicrous, but I don't know how -- this thing is obviously very kind of draining on him. I cannot make a trip to Argentina all the time. The thing I kept thinking is...

MATALIN: For business, but I'll be coming with you on these trips now.

CARVILLE: I have no how long that flight was from Boston. I know the schedule says 11 or 10 hours, whatever it is, but I got a feeling that thing must have felt like two years for him.

MATALIN: Yeah, think about that.

CARVILLE: I couldn't -- that flashed through my mind. But he does -- his political survival, and I think there's a lot of Republicans and the Democrats don't have a lot of say there -- but there's a lot of Republicans probably not crazy about the lieutenant governor getting the leg up on the next governor's race and just to have him hanging around for the next year and a half. It will play out in South Carolina pretty interesting.

KING: And James made the point, don't take advantage of this, but politics isn't fair. Do you think because of Senator Ensign and now Governor Sanford, you will have a lot of Democrats saying don't believe these Republicans when they talk family values?

MATALIN: Yeah, they'll try, but voters are not -- just because they were irrational in the last election doesn't mean they will be in future elections. We're coming back to a political homeostasis. I keep citing the resurging Republican numbers, but they're reflected in all the polls. People are going back to what -- they're looking at policy now. They're done with adoration, they're done with emotion, they're in the reality evaluation. And they are not going to hold the entire party or set of ideas or philosophy, hold it against that.

KING: He's raising his finger. Do I give him the last word?

CARVILLE: I just want to make a point.

MATALIN: Yes, he can have it.

CARVILLE: If they go back to this, what do they tell the children, family values stuff, I would lead the attack on them. If they just leave it alone and say, you know, we're all human beings, we're all capable of falling, let's concentrate on policy, then that's fine. Let's move on to the next thing.

KING: We'll save this tape for the next campaign, I promise. Mary Matalin, James Carville, thanks for coming in today.

In just a moment, we'll turn from Washington to West Virginia, Fosterville, West Virginia, to be exact, where we sat down for a great breakfast and a candid conversation about health care, the economy and coal country. Stay with us.


KING: In our travels this week, we headed out to West Virginia. We were looking at some health care issues, and also a whole bunch of other things. One of the things we do, we went to this community in Fosterville. Let me show you statewide numbers here. The unemployment rate nearly 9 percent. Nearly 14 percent, the residents of West Virginia, do not have health insurance, 17 percent of them are below the poverty level.

And it is higher in some of the rural communities that we visited. I want to show you this, when we travel, we look often at church signs. But let's capture a bit of the character of a community. And make God your first resource, not your last resort. That at the Amazing Grace Fellowship Church. This was part of our travels, to learn a little bit about rural America, what they think about the big conversations here in Washington, about health care, about the economy, about climate trade. We talked it over an amazing breakfast at Angie's.


KING: Do you want Washington to fix anything, or would you rather the politicians leave you alone?

SHEILA MEADOWS, WEST VIRGINIA RESIDENT: That's a touchy one. I think they have good ideas. I really do. Some of the hard-line people would say, well, they need to just leave us alone.

KING: How about you, sir?

UNIDENTIFIED MALE: Well, I feel about the same thing. I've hard troubles and stuff.

KING: Your insurance cover everything? UNIDENTIFIED MALE: Yeah, they take care of me pretty good.

KING: When they talk in Washington about covering the uninsured and trying to drive down costs, do you trust them to handle this right?

KING: Or do you worry that in changing to help people who don't have insurance that those who do might end up somehow paying the price or?

DOSS: I'd like to see them help people that don't have health insurance. A lot of people don't have health insurance.

MEADOWS: Especially the children, you know? There's so many children even around here that have no health care coverage.

KING: Do you trust them to deal with it in Washington? Do you think they have the right ideas? Or do you worry about that?

ANGIE TRAMONTANO, FOSTERVILLE, WEST VIRGINIA: Oh yes, I worry about it. But, you know?

KING: What do you worry about?

TRAMONTANO: They'll do what they want to do anyway, you know?

KING: Do you think they understand communities like this?

TRAMONTANO: Probably not. If they would come out in the little communities, you know, they would see and talk to people.

KING: You run a small business that is dependent on people having money in their pocket that they're willing to spend. How are things now as opposed to say six months or a year ago?

TRAMONTANO: It has been slow due to the coal mines. Like a lot of the coal miners are getting laid off, losing their jobs. So that affects everybody, you know. It has really affected here.

KING: The domino effects if the coal -- if the coal economy is struggling, you struggle, too.

TRAMONTANO: Right. Right, it affects all of us, all of the businesses. That's what my husband is into, like tires, you know, tire business for Goodyear, it affects here, his business, like everybody's, the coal business.

KING: Right. And why is the coal business struggling right now?

MEADOWS: Because of all the other businesses that are taking cutbacks shutdowns and things like that, they don't need the coal for the electricity to run these bigger buildings. KING: How has that changed over the years? Now in a lot of circles -- in political circles, you know, coal has a dirty name.

DOSS: Well, I don't know. I just -- it's looking bad right now for coal. I don't know exactly what to say about that.

KING: When you hear -- even Al Gore has -- his organization pays for TV ads, saying, there's no such thing as clean coal.

DOSS: I've heard they want to do away with coal. So I mean, if they do, this country has had it. This state here has had it.

KING: Right. Well, what would happen in a community like this if they went, cut back even more on the use of coal?

DOSS: Well, this place would look like a ghost town. There wouldn't be nothing left of here.

KING: Do you think the president of the United States is on your side?

TRAMONTANO: It doesn't look like it, not right now.

KING: Why?

TRAMONTANO: Because he's against the coal mines, the coal, you know, as far as I know, he has never been close by.

KING: Do you think he's on your side, sir?

DOSS: No, I don't. From what I've heard of it, no, I don't.

KING: How about you?

MEADOWS: I'm still debating that. You know, you have the singers and the stars that come, and they tour the coal areas, especially the strip mines, and things like that. They don't -- they don't get to see, you know, how hard these men work and things like that.

And sometimes I think it would do these higher-up politicians a lot of good to come and (INAUDIBLE) with these coal miners.

(END VIDEOTAPE) KING: Politicians in a coal mine, not a bad idea. I can tell you we're going back to West Virginia soon to spend some time in a coal mine. You see the beautiful hillsides here.

When we come back, three reporters, three of the best political reporters in the country open their notebooks on the economic debate, health care, climate change, and the future of the Republican Party. Stay with us.

(COMMERCIAL BREAK) KING: I'm John King, this is STATE OF THE UNION. Here are our stories breaking this Sunday morning. The president of Honduras has reportedly been injured during a military- led coup. A government official tells CNN Jose Manuel Zelaya was arrested this morning, taken out of the country, reportedly to Costa Rica. The arrest comes on the same day Zelaya had vowed to follow through with a referendum on term limits. The supreme court had ruled that illegal.

President Obama says he's deeply concerned about these developments and he is calling on all parties there in Honduras to follow the rule of law.

Iran's supreme leader has issued a call for national unity. Ayatollah Ali Khamenei urged both sides in the bitter election dispute to calm down. That appeal broadcast today on Iranian TV.

Britain has criticized the arrest of British embassy employees in Tehran. Iranian media says those workers were detained for their role in post-election protests.

President Obama has written a letter to Michael Jackson's family rather than making a public statement on the singer's death. Senior adviser David Axelrod says the president felt expressing his feelings privately was more appropriate.

Axelrod also says Mr. Obama believes Jackson was a magnificent performer who made an undeniable impact on music. That and more ahead on STATE OF THE UNION.

A shot of the White House there on the final Sunday in this June, a key time for the president's domestic agenda. And joining me here in Washington to discuss it: Dan Balz, he is the senior political writer for The Washington Post, and author of the new book, "The Battle for America 2008: The Story of an Extraordinary Election." Also with me, CNN senior political analyst Gloria Borger, and CNN senior congressional correspondent Dana Bash.

Dan Balz, let me begin with you, because in that book, I'm guessing you explore what happened during the campaign and candidate Obama saying he would not raise taxes on the middle class in his health care fight, first with Senator Clinton, then with Senator McCain.

David Axelrod this morning -- two weeks ago Secretary Sebelius, Vice President Biden were out trying to slam the door shut on that, David Axelrod seemed to open it a bit today. I want you to listen. (BEGIN VIDEO CLIP)


KATHLEEN SEBELIUS, HEALTH & HUMAN SERVICES SECRETARY: ... the premise that 180 million Americans have health coverage through their employer, that attacks on those benefits may dismantle that marketplace. DAVID AXELROD, SENIOR ADVISER TO THE PRESIDENT: He's very cognizant of protecting people, middle class people, hard- working people who are trying to get along in a very difficult economy. And he will continue to represent them in these talks, but they're also dealing with punishing health care costs. And that's something that we have to deal with.


KING: If two weeks ago you're trying to slam it shut, why the "but" now?

DAN BALZ, THE WASHINGTON POST: Well, he wants to pass the bill. And in order to pass the bill, it is not clear what the set of pieces are that will come together to allow him to do that. Taxing health care benefits is one option. There is a lot of potential money in that. There is resistance, particularly among unions on that that would be hit hard.

But they don't know what the formula is to get this bill through the Senate and the House, and particularly the Senate. And there are a lot of negotiations going on in the Senate Finance Committee, as we all know, and they're going to wait.

He's going to lay down his principles. He is going to continue to talk publicly about what he would prefer to see, but he is certainly not drawing any firm lines at this point.

KING: And is there a risk in that, Gloria? There certainly are pros in that. As Dan says, they think it moves it along if the president sort of has a mostly -- not completely, but mostly hands-off approach. But what's the potential downside?

BORGER: Well, the potential downside is you wait too long, and then the train leaves the station and you're not on it.

I mean, I was talking to somebody at the White House last week, and he said to me, this bill will be written in conference committee, that essentially they're going to see what they get out of the Senate, they know what they get out of the House, and they're going to -- that's where they're really going get involved.

But these issues of how you pay for this are very difficult for this White House because they made a lot of promises during the campaign.

BORGER: That they didn't believe in mandates; they didn't believe you'd have to buy into this -- force people to buy health insurance. They didn't believe in taxing health benefits. Both of those things that they spoke about during the campaign -- they may have to, kind of, say never mind.

BASH: But the White House really has been sending mixed messages on this fundamental issue of whether or not they will go for taxing benefits as a way to pay for health care.

But guess what? Here's the reality. They're probably not going to have a choice.

I was standing for hours and hours outside of meetings...


... where the Senate Finance Committee members were meeting all this week, looking at that fundamental issue, how do you pay for a trillion-dollar health care reform bill?

And two of the lead senators, Democrats, on that, told myself and other reporters, coming out of these meetings, they just don't see a way to do this without having taxing benefits as a critical part of paying for the president's health care reform.

KING: And among the people in the room for those talks is one leading Republican, Chuck Grassley. He's the ranking Republican on the committee. He comes from Iowa, where this health care debate played out in the campaign. He's on the ballot. He wants to do something.

And he says, even though you have many Democrats now saying, I don't even if we can afford this; I don't know about this option or that option, Chuck Grassley says we can have a bipartisan plan "if."


GRASSLEY: ... if it doesn't touch the concerns that we have about federal control of health and leading toward a Canadian-style single-payer system, then I think it can get bipartisan support.


KING: Dan, we lived through this back in '93 and '94. The president wants Republican support. Obviously, Chairman Baucus wants Senator Grassley's support, but he seems to be ruling out a public option there.

Is it wasted time, almost, trying to work it out with Republican if, in the end, one of your lines is you will have a option?

BALZ: Well, the question is, what's the shape of a public option?

I mean, all of these things seem negotiable at this point. So there is -- there's a lot of discussion under way as to how you would do this so that it doesn't sound like it's government running health care. And it may be that they can find some language that's acceptable to Senator Grassley.

I mean, Senator Grassley seems to be the last cog in an attempt to get a bipartisan bill. In many ways, the administration has moved on from that, but they're prepared to pass with this Democrats if they have to. But they would dearly like to have Senator Grassley, who might then be able to bring more Republicans in than who otherwise might come to it.

But the -- the shape of that public plan is critical because you can lose people on the left if it's too watered-down.

KING: And let me bring the climate change debate into this. Because many Republicans, most are to the right of Senator Grassley, saying any public option is too much government.

And now we're hearing the same thing when it comes to this climate change bill that just passed the House, cap-and-trade system, designed to control the emissions of greenhouse gases.

Minnesota Governor Tim Pawlenty, who might be running for president pretty soon, had this to say.


PAWLENTY: This bill goes so far as to have the federal government micromanage and prohibit what local homeowner associations can do as it relates to the design features of a local homeowner association. That's one examples of dozens in this bill, in terms of its overreach.

And it's a cap-and-trade bill. It's going to cap our job growth and trade our jobs to other countries who provide a more competitive business environment.

This is the overly burdensome version that Congress has put forward.


KING: Let me start with the threshold question to Capitol Hill. It passed the House just barely. That bill have any chance in the senate?

BASH: We don't know yet. I mean, they're not even going to go there until the fall because health care really is front and center in the Senate, right now. So they've got some time to -- to let things simmer a little bit.

But I think that is certainly one argument that Republicans are making, but the most fundamental argument that Republicans are making -- and it's why -- it's counterintuitive, but why they were actually excited to vote on something they knew they were going to lose in the House, because it gave them a political issue, and that is taxing. And that is what they're going to go home and they're going to -- you know, they're already preparing the ads for 2010, saying that this is something that will be a tax on your energy.

For people out there, the Congressional Budget Office said it was like $175 by the year 2020. You know, if that is something that Republicans can grab onto and get out there and allow it to resonate, that is something that could be a big political issue for them, and that's why they're happy about it.

KING: OK, we'll take a time-out, here. Much more to talk about with Dan and Gloria and Dana. We'll be back in just a minute. Don't go anywhere.


KING: We're back with Dan Balz from The Washington Post and CNN's Gloria Borger and Dana Bash.

I want to turn our attention to the drama playing out in South Carolina. Just this morning, Governor Mark Sanford told the Associated Press that he had thought of resigning after acknowledging his extramarital affair, but he has decided to stay in office and fight to keep his job.

As we discuss it, I want to take you back to an interview I had with the governor about two years ago. He was talking about the damaged Republican brand, at that point, the losses in 2006 and the struggles for the party heading into the 2008 cycle.

But, boy, if you listen to what he said then, you can apply it to what he's going through now.


SANFORD: I'm clueless, in political terms, and constantly get myself in trouble on that front, but the -- I would say this. At the end of the day, good will come out of it. I don't know whether we'll win the next presidential; whether we won't win the next presidential, but, you know, the times that you grow are often times in or associated around loss.

There's not a lot of introspection when times are going great. There's a whole lot of introspection when times aren't going so great. (END VIDEO CLIP)

KING: And, Gloria, as the introspection goes on in Governor -- with Governor Sanford and with his family, is there a larger suffering with the Republican party? Or will this soon be forgotten?

BORGER: It's hard to make a judgment, in the long term, how this is going to affect the Republican Party, but I think this is a party that was just catching its breath after Senator Ensign of Nevada admitted to an extramarital affair. These are two people who are stars in the Republican Party, mentioned as possible presidential contenders in 2012. This is the party that prides itself on family values. Sanford himself was very strong in condemning Bill Clinton. And so I think this is a party, particularly with their own religious evangelical base, who may look at the party and say, you know, you talk the talk, but you don't walk the walk.

KING: There's a question as to whether he can survive. He says he doesn't plan to resign. There are some pushing to try to impeach him or to have some investigation.

KING: I talked a little bit about this with Governor Pawlenty of Minnesota this morning, because he's a governor, he travels outside the state. I asked him if he would do what Governor Sanford did.


PAWLENTY: Your staff has to be able to reach you and reach you quickly for all the obvious reasons, national disasters, terrorism or other events, and so I'm very careful that numerous staff people and my security detail always know where I am and can reach me and any governor should do that.

KING: So Sanford was derelict in his duty?

PAWLENTY: He should not have left the state and not allowed people to know how to contact him.


KING: Dan, you've spent quite a bit of time in South Carolina. Does this survive this? Obviously there are some down there who say he will survive, simply because they don't want the lieutenant governor to take over.

BALZ: I think that may be partly what does help him survive. The dynamics of these are very unpredictable, and we don't know what other information may come out in coming days or weeks.

He's obviously going to try to hang on, and he may well be able to do it. I think he was obviously a reduced figure not just nationally but even in his own state. So the question is, what effectiveness does he have left, even if he's in office?

KING: And the next question I think is what does this matter in the big picture? Is it an isolated incident, something that we turn to because of the big drama, or does it hurt the Republican Party? The senator from his state, the senior senator from his state, Lindsey Graham, was out this morning and he offered his thoughts and prayers to Governor Sanford. But then he talked about the bigger picture. And it is Senator Lindsey Graham's case that the Republicans are beginning to find their footing, and he said it's not because of anything great they're doing. Let's listen.


SEN. LINDSEY GRAHAM (R), SOUTH CAROLINA: The Republican Party has the opportunity now to get back in the game, and we appreciate the Democrats for making that possible. Without them, we would be out of the game. If President Obama had went to the middle and did all the things he said he would do in the campaign, we would probably be toast. But he has not. You know, I know bipartisanship when I see it. You pay a price for it. There has been no bipartisanship.


KING: That's an odd way to put it, Dana. We're on the way back, thanks to the other guys mistakes. Is that how they feel?

BASH: Absolutely. You know what, he's right. He's right in a lot of ways in that it's not necessarily because of big Republican ideas that Republicans have the chance to come back. It's because of the fact that the guy who is in charge right now at the White House is a Democrat. People in charge right now in Congress, they are Democrats. So they are really banking on Democrats the energy issue that we were talking about as case in point. They are banking on Democrats making tactical, political mistakes that they can take to the bank, so to speak, in the election.

The big question though is who is going to be the person that takes that to the bank? Who is the leader to sort of seize on what they consider to be Democratic mistakes and run with it? We don't know yet.

BORGER: And the big question is also what happens with the economy? I mean, if in 2010 you're going to have a mid-term election, and if unemployment is above 10 percent, it could be a good year for the Republicans, and people don't see the effects of the stimulus.

KING: But you've written about this, Dan, in the newspaper, and I assume you covered it a bit in the book. The demographic, the long- term demographic challenges, are Republicans thinking because of the spending is any of that changing or when they look at the Latino vote, the suburban vote, the young vote, do they see a big ditch?

BALZ: Well, the demographic obstacles to the Republican comeback long-term are enormous, and unless they can figure out that puzzle, they've got a big problem on their hands for a long time to come. Go back to this point though, I think the first thing that has to happen for them is that they have to find whether there is an audience for what they're talking about, and some of that will result, as Dana suggested, by how successful or not President Obama is with these very big initiatives. So there is a lot on the table. Then comes the question of who can take that and lead the party beyond that. We're a long way from knowing that.

KING: Long way from it. We'll have you all back. I have to call a time-out for time purposes here. Dana Bash, Gloria Borger, Dan Balz, thanks for coming in. Next, we head to Spring Hill, Tennessee, for an annual tradition you won't want to miss. Stay with us.


(BEGIN VIDEO CLIP) MIKE O'ROURKE, PRESIDENT, UAW LOCAL 1853: If General Motors is serious about their most competitive plants, the most competitive plant in the country is in Spring Hill, Tennessee. We've done everything that's been tough over the last seven to 10 years, and we're ready to rock and roll. But it also pains me because now we're talking about more plant cuts, which is more jobs.


KING: Yesterday though, General Motors announced, that's the union president in Spring Hill, Tennessee. He's the union president of this factory here, right here in Spring Hill, Tennessee. Well, yesterday General Motors announced that plant would not be used, that a new factory to create small cars would move to Michigan. So in Spring Hill, Tennessee, a lot of pain, but also still tradition. After the Civil War, this tradition was founded. They call it mule day. You might call it a tribute to the original hybrid.


UNIDENTIFIED MALE: I'm G.W. Miller, and that's just my initial name. I guess that's what it was. I've pretty much been around the world, but this is my favorite place.

UNIDENTIFIED MALE: And so now we're up to over 600 items, the horse, mule-drawn items, as well as old household items. This is the old wood burning kitchen stove here. The seeds started appearing on the solar equipment after the Civil War when the folks came back home missing legs.

UNIDENTIFIED MALE: Really from the days prior to and after the Civil War, this county was the premier agricultural county in Tennessee for at least 100 years. And at one time, I guess we still made, we were the mule capital of the world. People came here from many different areas of the country to buy, sell or trade their mules in the springtime. And so that later on turned into a festival to honor the mule, and mule sales still take place during the week of festivities we have here.

UNIDENTIFIED MALE: My grand daddy had a mule and my daddy had a mule, and we got a mule, and my daughter and son-in-law got mules, so it is a tradition handed down from generation to generation.

UNIDENTIFIED MALE: It's part of our heritage. It's part of our history.

UNIDENTIFIED MALE: It used to be the tractors. Before we had tractors, everybody used mules.

UNIDENTIFIED MALE: It needs to be preserved. If it hadn't been for the horse, the mule and the plow, we wouldn't be where we are today.


KING: Great folks down there in central Tennessee.