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STATE OF THE UNION WITH JOHN KING

Sound of Sunday

Aired August 2, 2009 - 11:00   ET

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


JESSICA YELLIN, HOST: And I'm Jessica Yellin. This is "State of the Union."

It's 11:00 a.m. Eastern. Time for "State of the Union's" "Sound of Sunday." Twenty-two government officials, politicians and analysts have talked about the economy. The treasury secretary and two senior White House economic advisers. Two Republican critics of health care reform, and the powerful chairman of the House Ways & Means Committee. And the former Fed Chairman Alan Greenspan. We've watched the Sunday shows so you don't have to, and we'll break it all down with Donna Brazile and Bill Bennett and three top reporters. "State of the Union" Sound of Sunday for August 2nd.

Will there be new taxes for the middle class? President Obama's Treasury Secretary Timothy Geithner does not rule it out.

(BEGIN VIDEO CLIP)

TIMOTHY GEITHNER, TREASURY SECRETARY: That's going to require some very hard choices. And we're going to have to try to do that in a way that does not add unfairly to the burdens that the average American already faces.

(END VIDEO CLIP)

YELLIN: one of the president's top advisers says the economy is now moving in the right direction.

(BEGIN VIDEO CLIP)

LAWRENCE SUMMERS, DIRECTOR, NATIONAL ECONOMIC COUNCIL: The economy is no longer in free fall. Outside observers are looking towards growth. People are speculating about when the recession is going to end rather than about whether it's going to turn into a depression. The priority has to be to go with a plan that's working and implement it as vigorously as possible.

(END VIDEO CLIP)

YELLIN: And the president is getting surprising credit on the economy from a former rival. But also a warning.

(BEGIN VIDEO CLIP)

MCCAIN: I think you could say that it is a short-term improvement in the economy. And I'll be glad to give him credit for that, but the question that I think we should be asking, are the long- term consequences of this unprecedented debts and deficits, are they beneficial to the country and I think the answer is no. (END VIDEO CLIP)

YELLIN: 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 in Washington, CNN contributor and radio talk show host, Bill Bennett, and CNN political contributor and Democratic strategist, Donna Brazile. Hey, guys, thanks for being here this morning.

BRAZILE: Good morning.

YELLIN: So on all the morning shows, we've seen some of the president's economic advisers stand out and say the economy is looking so much better. But Bill Bennett, I want to ask you, we've heard this before, everything's looking great, and then they have to reset. Is this glimmers of hope all over again?

BENNETT: Yes, and a day in which they put people out saying everything is getting better, it's a tough to have a headline that you led with, not ruling out middle class tax cuts. Yes, they may have to reset again. In your interview with Christina Romer, you played a whole bunch of things they had said earlier. One of the things she said was that they didn't think unemployment would get above 8.5 percent, thanks to the stimulus, it's now above 9.5 percent and headed towards 10.

Look, I expect the economy will turn around. I also expect the stimulus had very little to do with it. When it turns around, however, because that's the rules we play by Jessica, if President Obama's the president, he'll get some credit for it. But I think it will be on the strength of the American worker and the American resilience that it will happen, not the stimulus.

YELLIN: Donna, one person is already giving the economy a thumbs up, and the president, a man not usually known for speaking clearly, says there are clear signs that this economy has essentially hit bottom. Let's listen.

(BEGIN VIDEO CLIP)

ALAN GREENSPAN, FORMER FED CHAIRMAN: I'm pretty sure we've already seen the bottom. In fact, if you look at the weekly production figures of various different industries, it's clear that we've turned, perhaps, in the middle of last month, the middle of July.

(END VIDEO CLIP)

YELLIN: So the question is, does the White House have to walk a very careful balance between on the one side, being positive about the economy, on the other side, not overstating it? BRAZILE: Well first of all, I think Mr. Greenspan is absolutely correct. By all of the leading indicators, the recession is receding. But on the other hand, I think the White House needs to be a little cautious in going out there and declaring a victory, because most Americans on Main Street are clearly not feeling the recovery yet. They're not feeling it in terms of in job creations, and that will take time to come back, because we know that's one of the lagging indicators of a rebound.

But also they're not feeling it in terms of those who are struggling to pay their mortgages. They're not feeling it in terms of the bank's ability to give them the tools needed to stabilize their own economic situation. So this is still a work in process, but I applaud the administration for stopping the slide that we were going through back in January when we were losing 700,000 jobs a month and of course the banks were not lending. So this is a work in progress, but we're not there yet.

YELLIN: Bill, let me ask you, because during the Bush years, there was what is ironically called a jobless recovery, where the stock market was strong, corporate America was strong, but the jobs just weren't there. So will this president be able to take credit for recovery if the jobs don't come back?

BENNETT: Well, we'll see. We'll see what other burdens he puts on the economy as well, which I think is another problem. I know we're not talking about health care now, but as other things come down the pike that cost a lot of money, and again, you have people talking about new taxes, we'll see what other burdens go on the economy.

But, look, the most -- one of the most resilient things in the world is the American economy. It is a very strong beast. And even with these burdens, I think you're going to see it come back. The question is, how strongly will it come back? That will have to do with how much else President Obama decides to put on the back of the beast.

BRAZILE: But one of the things that I believe is important to acknowledge is because this is not just a Washington problem. This is a problem taking place in state capitals across the country, as we see decline in revenues, and also property tax rates going down. So state governments are having a hard time making ends meet, and that is putting extra burden on the federal government and President Obama to ensure that those states don't go under.

YELLIN: Well, the president has done a number of things to try to turn the economy around. He said, he was actually going to use a three-legged stool, his analogy. One leg is the stimulus, another is the mortgage plan, the other is financial regulations. The mortgage plan is by many accounts, a disaster. They had to call folks in this week to say, start refinancing. And then Christina Romer came on today, when I asked her about refinancing, she had to this say. Let's listen.

(BEGIN VIDEO CLIP)

ROMER: The stool has now probably, I don't know, four or five legs, right? Part of getting healthier, coming out of this crisis was health care reform, energy, climate, and financial regulatory reform. All three are absolutely top of his agenda.

YELLIN: So it's a four or five-legged stool?

ROMER: It's at least. Precisely because the president said it wasn't enough to just rescue the economy.

(END VIDEO CLIP)

YELLIN: Four or five legs. Bill, are they taking on too much, or do they just not know how to fix it?

BENNETT: How many legged beast is this going to be that has to be slain, we'll see. But notice, although it's five or six or seven legs, the only thing that's passed, really, is the stimulus, and it has not proved to be successful, unless you reinterpret what Joe Biden said when he reinterpreted what the stimulus was supposed to do.

Was it supposed to be a jolt or not? But again, these are very serious matters. And if the economy recovers, what do we do to sustain that recovery? When you see newspapers talking about tax brackets up in the high 50s, when you count state as well as federal, you are not looking at something that's going to sustain a recovery.

BRAZILE: Well, first of all, let's be very clear. The Congress has done more than just pass the American Recovery and Reinvestment Act. They've also passed legislation on mortgage relief, $75 billion. And the reason why it's so slow in moving to the people who need it is because you have all these regulations that most people who qualify, one, don't know how, and then secondly, they're under water. Their properties are worth less now than it was before. So I think -- and also, there was important credit card reform legislation to stop the incremental increases --

YELLIN: But they have not done --

BRAZILE: There's a lot out there, we just have to make sure it works. We shouldn't be naysayers and say, we don't want it to work.

BENNETT: I want things to work, but these are not working.

BRAZILE: We have to restore consumer confidence because consumers account for 70 percent of our economy. We talk about small businesses, we talk about corporations. But people are saving their money, they're hoarding their money. You know why? Because they're scared. They're scared about rising health care costs and scared --

YELLIN: Let me ask you about that today because there are indications that there could be, at least the Treasury secretary is not ruling out the possibility of middle class tax increase. How would that play, politically, for President Obama, if that had to happen?

BRAZILE: Well as we know, that 95 percent of the tax relief that was offered in the American Recovery and Reinvestment Act went to middle class Americans. So I would hope at a time when middle class Americans and others are feeling the squeeze from the state governments and the local governments and now the federal government with the debt, I would hope that this would not be an issue right now. But if he's talking about putting this in the mix in terms of how we pay for health care reform, we need to take a look at it.

YELLIN: Bill, does that make you think, oh, this is going to look good in 2012 for the elections?

BRAZILE: I'm really not thinking about that, but the interesting thing is, it's not so much President Obama and the Democrats versus the Republicans at this point. In many ways, it's President Obama and the American people. And the more they're hearing, the more skeptical they're becoming. Thus you see his polls going down. I don't want to be gloomy, I want to be upbeat. It's always morning in America as far as I'm concerned.

But the problem is, when people look at these various proposals, like health care or like cap and trade, what they're getting is, they may have additional burdens on them, additional taxes or additional costs. And that doesn't, A, encourage them, B, it doesn't encourage a long-term recovery.

YELLIN: Let's listen for a moment, though, to Larry Summers. He was speaking this morning. There are 15 million Americans currently unemployed. The unemployment number is expected to jump by the end of the week. Here's what he said the administration is thinking.

(BEGIN VIDEO CLIP)

SUMMERS: We'll work with Congress to make sure that unemployment insurance continues to perform its basic function of protecting the unemployed. That was an important element in the Recovery and Reinvestment Program. It's helped people who have become unemployed. It also helped the economy by maintaining spending, and we'll do what's necessary to make appropriate unemployment benefits available.

(END VIDEO CLIP)

YELLIN: Bill, I know you're worried about the deficit and the debt. Do you think that unemployment benefits is worth extending? That's a cost worth incurring?

BENNETT: Yes, actually, by itself, I do. The problem is, they have already spent so doggone much money. That has put them in a bind with this stimulus package. When you start with -- when your down payment is $780 billion, that does not give you a whole lot of room. And if you notice what the American people are saying, their first concern is not any of these things.

BENNETT: Their general first concern is spending and deficits.

BRAZILE: President Obama inherited $1.3 trillion, came into office. The Bush administration doubled the national debt and it did not help the middle class with the basics of their everyday living. So we're all concerned about the deficit, but this is needed investments to ensure that we give Americans who have lost their jobs a lifeline, whether it's providing food stamps, whether it's giving states to continued the Medicaid funding, or giving these American workers the ability to go out there and retrain and retool themselves.

But you know, we spent $1.3 trillion on tax cuts for the wealthy that we could not afford. We spent trillions on a war that we could not afford. We spent trillions on Medicare with the expensive program that give money to the drug companies, and nobody raised a peep about the deficit. He's spending money right now, the president and his administration and Congress to ensure that every American can get a head start and a healthy start in life.

YELLIN: Bill, can it wait until after the break?

BENNETT: Yes.

YELLIN: Yes, OK, because we have to mention, before we go, you're sticking around, you'll come back, we'll talk more, but we also want to point out that the administration is getting graded. CNN is doing its second grade for the second 100 days and we're letting people go online. Already I think, already, 20,000 or more have voted. You all have made grades. What were the topic you were asked about?

BENNETT: The economy.

YELLIN: The economy. How is the Obama administration doing on the economy. Oh, Bill Bennett, that's the biggest news of the morning, an A plus.

BENNETT: I'll tell you Thursday night.

YELLIN: Ah, a teaser. Donna?

BRAZILE: No question, it's a "B." Again, it's about the American people and the middle class and Main Street. And until they can recover, not just the banks, not just the corporations. It's middle class America. YELLIN: All right, a "B" and an incomplete. And you'll have a chance to grade the commander in chief. Go online and do it yourself and stick around. "State of the Union" will return after the break.

(COMMERCIAL BREAK)

YELLIN: We're back with CNN political contributors, Bill Bennett and Donna Brazile. But before we continue our conversation with them, I want to point out our grading system here. CNN is allowing everyone to vote on the president's performance. Here we have grade the performance of Secretary of State Hillary Clinton. You can go in, pick a grade and scroll on down. And you can read plenty of information on the Web site about Hillary Clinton, as you make your grade. Other categories, this has to be popular. Grade the media. You can tell us what you want us to know about our coverage. So go online. Our votes will be revealed this Thursday on a special here on CNN. And one person who is giving the president a surprising grade on the economy is Senator John McCain, his former rival, who sat down with John King.

(BEGIN VIDEO CLIP)

KING: Just before the inauguration, the president has a dinner in your honor and he said you're an American hero and a guy who reached across the aisle, and that's the tone he wanted to set when he came to Washington. On this point, has he failed the test he laid out at that dinner to be truly bipartisan?

MCCAIN: I'm afraid they have. And look, they've got the votes. We understand that. They had the votes in the stimulus package and the budget, and the omnibus and the SCHIP, all this legislation, and they have picked off sometimes two or three Republicans. But that's not changing the climate in Washington.

(END VIDEO CLIP)

YELLIN: OK. So that was about the tone in Washington, bipartisanship. I'm curious, Bill Bennett, do you agree with Senator John McCain? President Obama has not made this town more bipartisan?

BENNETT: No, it has been more bipartisan. Now, the Democrats don't really have to be, do they, because they have the numbers. Let me say something quick about his nice comment about the president. All this stuff about Bush, got to give it up. Bush's not the president anymore, Barack Obama's the president. And in terms of the deficit, Barack Obama is going to double or triple anything that George Bush did. And in a lot of those budget-busting things which I didn't approve that Bush did, Barack Obama voted for a lot of them. But in terms of -- one last point in terms of the stimulus. By their own account, only 10 percent of the stimulus money gets spent in 2009. It cannot not be doing a whole lot, and now they have revised to say, it's not really a jolt, it wasn't meant as a jolt. It's a long-term thing. BRAZILE: Well, let me just say that President Obama didn't get to Congress until 2005, and he didn't vote for the tax cuts and he didn't vote for the war, but let's not rehash the past, because we can spend the rest of the day here. I want to talk about bipartisanship.

First of all, I think it was highly overrated to believe that the president could come in and change the climate in Washington, D.C., overnight. It takes years to get people to develop the kind of relationships necessary to provide the trust for people to work together.

I spent 10 years on Capitol Hill. I worked with my Republican colleagues, because at the time, the Democrats and Republicans in Congress, we had a more cordial, civil relationship. That changed in the 1990s, and we need to go back to that era.

YELLIN: Donna, I know you know a lot of the people who work inside the White House well, you talk to them. I remember them being surprised when the Republicans in the House voted unanimously against the stimulus the first time around. Has the White House been surprised by the degree of Republican resistance? Did they expect a more welcoming, more welcome arms from the Republicans?

BRAZILE: I think the president and his team, they've done a fantastic job in reaching out. They have this Wednesday night cordial meeting with cocktails, the other night he had business leaders in to try to improve the relationship with the business community.

But the truth is, it takes time, and it takes effort, and it takes, basically, issues we can all agree on. I read today, I guess, in one publication, that maybe education is the issue that Republicans and Democrats can find common ground. I know Bill and I have found common ground on that issue.

YELLIN: Bill, was the president cynical or naive to promise bipartisanship?

BENNETT: Well, I don't know which he was. I can't say his heart. But I'll tell you, when you come in and you want to change the climate and one of the first things you do is trash the people in the CIA for helping to defend the country and say, well, maybe we'll open up inquiries into this, this isn't a very good start.

Again, he's in trouble, but I want to say, as a partisan, strong conservative Republican, it's not because of Republicans. It's because of the American people. The more they are looking, the more they are reading, the more he talks about health care, this plan, his plan, the less support it's getting. It's not Republican opposition. They've been basically frozen out, except for a couple of subcommittees.

BRAZILE: Not totally froze out. They're able to offer amendments and offer their ideas. And many of the ideas that the president incorporated, including the $268 billion that was part of the Recovery Act, Republicans are not giving the president credit for accepting their ideas. Instead, they're trashing him all the time. YELLIN: Well John McCain was very clear when he interviewed with John King, saying that he really felt that the Republicans were excluded from the health care debate. He also thinks that the president is handling it wrong strategically. Let's listen and I'll let you react.

(BEGIN VIDEO CLIP)

MCCAIN: I think they may have over learned the lesson of the Clinton proposal of '93 where they were totally specific proposals.

MCCAIN: Now there's not enough. At this point I think the administration, the president has to be more specific.

(END VIDEO CLIP)

YELLIN: Donna, do you think they're leaving it too wide open for Congress to define health care?

BRAZILE: Well, I think the president laid out some broad principles, and clearly, four out of five of the congressional committees have agreed to many of those principles. And let me again say that again, the Democrats are accepting many of the Republican ideas on the exchange program, for example, on reducing costs, finding greater savings.

Some of these ideas are being generated from Republican members. And yet when the bill hit the floor, they want to wash their hands of it. That's not the way they should operate.

BENNETT: Doyle McManus in The L.A. Times this morning says the president has lost control of the issue -- the health care issue. I think he...

(CROSSTALK)

YELLIN: You agree?

BENNETT: I think he has. We had a petition last week we were running on "Morning in America" and other radio shows, we had half a million signatures last week, we will have a million signatures tomorrow, we will have a million signatures tomorrow.

BRAZILE: Well, he has an opportunity to...

(CROSSTALK)

BENNETT: The more the conversation goes on and the more people see, and now you've got this month -- Paul Ryan, congressman from Wisconsin, told me he was going to have 15 town hall meetings. So will many of these other members of Congress.

YELLIN: So are the Democrats, and they're going to blanket the airwaves.

BENNETT: Absolutely. Oh, absolutely, absolutely. And they're going to get questions by, for example, the elderly, many of whom are Democrats, about health care, and will they be able to answer them?

YELLIN: Is this really about President Obama finding the words to explain to the American people why they should be with him on this?

BRAZILE: Well, for the last couple of months, we've all been watching the sausage-making. It has been a very interesting process, by the way, because some of the ingredients in the sausage, I wouldn't accept, but that's my taste.

But now the president will have the month of August to retool his message, to make it a larger story about the economy and how health care plays into the revival of our economy. Hopefully the president will get back on message.

YELLIN: Because he does seem to have lost his greatest strength, which is the ability to make the complex simple and connect to the American people on health care.

BENNETT: Talk, talk, talk, talk. He's a great talker, I will give you that. I was happy to praise him on that. But that talk is not working. It didn't work at the beer summit, beer and sausage, maybe, we should try to get together on both.

But bring the American people in again. The more he appears on TV, again, on this issue, and tries to talk about it, the more nervous he makes -- the American people want to see change in health care, sure. Cover people who are uninsured? Sure.

But then they start hearing things about maybe they're going to have to pay more for their health care, maybe it's going to be rationed, maybe the government is going to start taking over decisions.

These are not, you know, crazy ideas. These are not crazy, right-wing, you know, kook or black helicopter things.

BRAZILE: But they are scare tactics to stop reform from taking place. And the industry that we know...

BENNETT: They're based...

BRAZILE: No, no, they are...

BENNETT: They're based on the reports, they're based on the documents.

BRAZILE: Sixteen years, 16 years, Bill, and nothing has happened but our premiums continue to rise, 61 percent of small businesses offer health insurance to their employees 16 years ago, today, only 31 percent. Because rising costs, people are now ineligible because of pre-existing conditions.

BENNETT: Donna...

BRAZILE: This can only improve our health care insurance system and delivery system. That's all it can do. BENNETT: I want something to happen too. Let's take the Waxman bill, which is the one that's furthest along. Let's everybody look at it for the next...

YELLIN: In the House of Representatives.

BENNETT: Right. For the next five weeks. Sunlight is the best disinfectant, Justice Brandeis said.

BRAZILE: I agree with you on that.

BENNETT: Let's take a look at it.

YELLIN: Wow. Let's end on agreement. That's perfect.

BENNETT: Yes, stop right there.

YELLIN: I like that. Right?

BRAZILE: No more hot sausages.

BENNETT: I give her an A.

YELLIN: Donna gets an A from Bill, I like that. Thanks for joining us, Bill Bennett and Donna Brazile.

And when we come back, we'll do what we do every week, get out of Washington and hear what you have to say. This week, John King spoke to some diners at Bud's Drive-In in western Idaho.

STATE OF THE UNION will be right back.

(COMMERCIAL BREAK)

YELLIN: Welcome back to STATE OF THE UNION. I'm Jessica Yellin. John King is off on a well-deserved break today. But earlier this week, he sat down over a cup of coffee at Bud's Drive-In in St. Maries, Idaho, and finds out what some of the locals were thinking as President Obama closes in on his second hundred days in office.

(BEGIN VIDEOTAPE)

KING: Let me go back to the last election. If you voted for President Obama, raise your hand.

So we have one Obama vote. Well, let me ask you, six months in, how is he doing?

DR. PATRICIA BAUER, ST. MARIES, IDAHO: I love him. I think he's doing great. I think he has come in working very hard to make changes that are needed. And I think he is continuing to stay focused on issues that are really very present for us.

KING: So let me ask me the two non-Obama voters. I assume you both voted for McCain?

DON GRIESEL, ST. MARIES, IDAHO: I voted for Palin.

WILLIAM BAUER, ST. MARIES, IDAHO: I think he has got a good start on doing stuff, but I don't know that he's accomplished that much so far. So I think the jury is still out.

GRIESEL: I think he has been a disaster. And we're right now on the abyss and we're about to go over. And if any of his plans are adopted, it's -- the only thing right now saving us is the Blue Dog Democrats. They're saving America. Praise the lord for the Blue Dog Democrats.

KING: Saving America because they're fighting the cost of his health care plan?

GRIESEL: That they're stopping the health care thing right now.

KING: You say you like some of the policies so far, what about health care? Are they doing that right?

W. BAUER: We certainly think we need national health care, because we're paying like $2,300 a month for our health care. I don't think you could succeed in pressuring a marketplace that's profit- driven. So I think you need a national health plan. GRIESEL: Eighty percent of Americans are happy with their health care. Leave them alone. Let's not equal the field and make everybody miserable.

P. BAUER: I suspect we really need a single-payer system. I don't think anything else is going to work. I'm a psychologist, I've practiced in California and I practice here. And malpractice is high. I haven't heard anything about doing something about malpractice. And I think that's a part of what needs to happen.

KING: The Democrats didn't put that in there on purpose. And the critics, of course, say that because the trial lawyers give them money. So in that sense, your party is wrong on that one, you think?

P. BAUER: Yes.

KING: You mentioned you were a Palin supporter. She just stepped down. She's no longer the governor of Alaska. Would you like her to run in three years?

GRIESEL: I would like to see her to step up to the plate. I've been watching pretty closely here to see what she's going to do. I kind of think she's going to make a run for it. And I hope she does. She's another Ronald Reagan, as far as I'm concerned.

P. BAUER: I think she's frightening. I think she's very ignorant. And I don't think she's very bright. She runs again, it's OK with me. I think she can be beaten.

W. BAUER: I couldn't vote for somebody that walked out on a governor's job that she made a commitment to. I don't think she could beat any Democrat. KING: What makes this place different? What's unique about here that maybe somebody who lives on the coast of California or maybe in New York City doesn't understand that there are places like this in the country?

W. BAUER: I think it's the wilderness, the -- I guess the hunting, the outdoors, the rivers.

W. BAUER: This is a spectacular place to live.

P. BAUER: The wildlife. I wouldn't hunt it, but I love the wildlife.

GRIESEL: Well, it's more down to earth. The people are more real, I think. And this is America, here. Where you get to the East Coast, the West Coast, it's all phony. It's all -- they're living a lie. They -- you know, they're just crazy, you know. You can see what's going on in California now. It's run by liberals and the state's bankrupt. They're -- they went over the edge. Now they want a bailout; same with New York, Massachusetts, Pennsylvania, all run by liberals. That's what happens.

(END VIDEOTAPE)

YELLIN: Well, that's what they think in St. Maries, Idaho, but what's your opinion?

We're giving you a chance to grade the Obama administration on the economy and much more. CNN has just opened the voting booth for the second national report card, so go to CNN.com/reportcard and you can make your voice heard. Those results will be revealed on a CNN special program. That's Thursday night at eight o'clock Eastern.

And straight ahead here, more of the "Sound of Sunday" and analysis from three top reporters.

(COMMERCIAL BREAK)

YELLIN: I'm Jessica Yellin and this is "State of the Union." Here are the stories breaking this Sunday morning.

The remains of the first American lost in the Persian Gulf War 18 years ago have been found and positively identified. Military officials say they belong to Navy Captain Michael Scott Speicher. Speicher's jet was shot down on the first night of the 1991 war. Military officials say tips from Iraqi citizens helped them find Speicher's remains, last month, buried in the Iraqi desert.

We now know the name of one of three American hikers arrested in Iran after crossing the border from Iran's -- Iraq's Kurdistan region. His name is Joshua Fattal and he lives in this house in Elkins Park, Pennsylvania. Iran's state-run media says the Americans were arrested after they entered the country illegally. The State Department says it is assisting the families of the Americans. And in Canada, one person was killed and as many as 76 others were injured when a stage collapsed during an outdoor concert in Western Alberta. A violent storm slammed into the area during last night's performance. The event organizer has canceled today's activities. All that and more, ahead on "State of the Union."

And right now, you're looking at a shot of the U.S. capitol in Washington, D.C. That's a little humid, a little rainy on this summer morning. Washington, D.C., always a little humid in the summer.

And joining me in Washington, here, Chris Cillizza of The Washington post, who writes the popular politics blog, "The Fix"; Time Magazine national political correspondent Karen Tumulty; and Peter Baker, White House correspondent for the New York times.

Thanks all for being here today...

(UNKNOWN): Thanks for having us.

YELLIN: ... for coming in on your Sunday. I want to start off, first, with the big news of the morning. Larry Summers was asked on a morning show whether there could possibly be tax increases in the near future for the middle class and the U.S. This was his answer.

(BEGIN VIDEO CLIP)

BOB SCHIEFFER, HOST, CBS'S "FACE THE NATION": No tax increases for middle-income America? SUMMERS: There's a lot -- there's a lot that can happen over time. But the priority right now, and so you -- so it's never a good idea to absolutely rule things -- rule things out, no matter what.

(END VIDEO CLIP)

YELLIN: And I think it was Timothy Geithner, Treasury secretary, also said there could be some tough choices ahead, referring to the same.

Peter Baker, you cover the White House. How devastating, politically, would it be for the president if he had to raise taxes on the political class?

BAKER: Well, look, they're trying to keep their options open, trying not to rule anything out. But, remember, the president's own campaign rhetoric last year was anybody who made below $200,000 a year was not going to see a tax increase in his administration.

To turn around on that, if that's where they end, that's a big, big deal. And it gratifies the Republican argument that, when they say they're only taxing the rich, ultimately that number comes down to the middle class.

Karen, you know the Congress very well. Would a middle-class tax increase even get through Congress? TUMULTY: You know, I really -- I find that really hard to imagine. Because, you know, these guys are also living with that pledge. And I think, specifically, in the House, for them to go and put themselves in front of the voters next year, having voted for something that would tax the middle class, I think, would be absolutely devastating.

YELLIN: Now, Chris, let me ask you. Are we making too much of this, "tough choices," "can't rule anything out?"

Is that the same as saying they could raise taxes?

CILLIZZA: It's not the same, but as peter said, it's opening the door. And that's important.

Look, these administration officials are briefed before they go on these shows. They do not say things by accident. The Larry Summers comments, I think, are intriguing, because the only thing worse, politically, than raising taxes on the middle class is saying you won't and then raising taxes on the middle class.

(LAUGHTER)

So I think what he's doing is exactly to Peter's point. They are leaving the door open because they recognize this is going to be a hard thing to fund; it's going to be a hard thing to pass, and they don't want to set markers and say, oh, we absolutely aren't going to do anything at the moment. Because going back on promises, hypocrisy, or the look of hypocrisy is the worst thing in politics.

YELLIN: Absolutely. And one of the things this administration, I think, is most worried about is the unemployment rate right now, 15 million Americans unemployed. It's going to get worse. We interviewed Christina Romer, the head of the Economic Council, and she said this morning that there's some concerns about this. Let's listen.

(BEGIN VIDEO CLIP)

ROMER: That is a thing we are working as hard as we can to avoid. But we do know that jobs tend to lag the turnaround in GDP. So, as I said before, we're probably looking at a turnaround in GDP before the end of the year, so then we'd expect jobs to normally start growing shortly after that.

(END VIDEO CLIP)

YELLIN: So the question is, could this be a jobless recovery?

BAKER: Well, that's certainly the worry at the White House. And you've got to remember that their problem is partly their own expectations that they set, originally, a few months ago, as you pointed out in your interview with her.

They said unemployment wouldn't go above 8 percent if we passed stimulus, 9.5 percent, right now. People are saying, so what did this add up to?

You know, obviously, a stimulus had to have had some effect. It didn't have the effect that some people might have wanted right away. And she came on your program and tried to say, give it time, patience; it's meant to be a longer term program than you thought.

YELLIN: Do you think, Karen, people get that, that they understand they're doing what they can, and jobs will come back eventually, or do you think there's an enormous amount of impatience out there?

TUMULTY: Well, I -- well, it's hard to be patient when you've lost your job and when, as we've seen today, unemployment benefits are running out.

And this is the number -- we've seen, you know, production numbers looking less bad then they had. Housing, you know, car sales, everything else seems to be, kind of, turning the corner. But until those jobs numbers come back, it -- politically, it's not going to help them.

CILLIZZA: And, you know, one thing, Jessica, it's not even the national unemployment. And I look at everything through the political lens. Look at some of the key swing states in 2010 and 2012: Michigan, 15.2 percent unemployment. Ohio is extremely bad.

CILLIZZA: North Carolina is not particularly good. Indiana, where President Obama won, where no one thought he could win. And where he's headed this coming week, not by accident. It's not even that that broad number, it's in some of those states that are being the hardest hit, those are places that Democrats are going to need in 2010. There's a Senate race in Ohio, there's a governor's race in Ohio, there's congressional races all over that area.

It's states they're going to need in 2010 and 2012. So it's where the unemployment numbers are so high. The question is, do they come back low enough before we get to next November so that Democrats can claim that the stimulus package and the policies under the economy that the president has put into place are working and it's time to give Democrats more of a chance.

YELLIN: It is a tough summer for folks who are out of work and right now, it's also going to be a long, hot summer according to John Boehner, the minority leader, for folks in Washington who say this August is going to be an ugly one for everyone fighting over health care reform.

John McCain was asked by John King about one with of the proposals in Congress right now, this idea of forming co-ops to cover the folks who are currently uninsured. He didn't have a very positive assessment. You might be surprised by this.

(BEGIN VIDEO CLIP)

MCCAIN: Co-ops remind us all of Freddie Mac and Fannie Mae. And so I have not seen a public option in my view meets the test of what would really not eventually lead to a government takeover.

(END VIDEO CLIP)

YELLIN: Well, Fannie Mae and Freddie Mac, for anyone who doesn't know, don't get thumbs up from businesses analysts. So Karen, you interviewed the president this past week about health care reform. He seemed unusually frustrated about his inability to connect with the American people in his message, why they should support this.

TUMULTY: In fact, he was very candid about this. And this is not something we're used to hearing from Barack Obama. He is where he is because of the power of his words. But he acknowledged pretty frankly that he thinks this debate is getting away from him. He's reading the poll numbers. He is worried about it. And he said, it is his greatest challenge of public life so far, is trying to figure out how he can connect on this.

YELLIN: Peter, have they lost -- has the administration already lost the advantage here, or are we just looking at this in the middle of an ugly fight and we're prejudging it?

BAKER: I think it's early to say. I think it's not good obviously that he set an August deadline and it's not met by either the House or the Senate. That has a way of weakening the president when these things pass without any actual action. But having said that, if by the end of the year, he does have a package of some sort, if he is able to pull this out, then people aren't going to remember the intermediary sense. We are at half time, in that sense.

YELLIN: They'll just say, we were hyperventilating, to the extent that the media does. BAKER: Well, we do, but you can see this going in either direction. We are at a fork in the road here. If health care doesn't happen this year, if it doesn't produce what Barack Obama has promised it to produce, that's a big, big moment in a presidency and as previous presidents have seen.

YELLIN: OK, we're going to talk about the stakes for the president on the other side of the break. But let's give it a break for a moment. Much more ahead with Chris Cillizza, Karen Tumulty, and Peter Baker. We'll be right back.

(COMMERCIAL BREAK)

YELLIN: We're back with "The Washington Post's" Chris Cillizza, "Time" magazine's Karen Tumulty, and Peter Baker from "The New York Times." OK, I want to talk with you about the Cash for Clunkers program because I can't get enough of it. It is so popular. Do you even know what qualifies as a clunker, Chris?

CILLIZZA: Thanks for setting me up on that one. Thanks to my colleague, Peter Baker, I know it's under 18 miles to a gallon that they get. Look, here's the issue I think is that in a way, this program has succeeded beyond the wildest dreams of the administration.

But the problem is, we now just threw another $2 billion at it. And for people, Republicans, who feel like the Obama administration solves every problem by growing the government and spending more money, where does this end?

Presumably, if they went through $1 billion in four days, $2 billion, maybe it's not eight days, but it's not going to last until November, which is when we thought this -- how much money do we spend on these trade-ins?

And where does it end? It plays into the larger Republican argument which is government spending were for government's spending sake, which they say is this, we shouldn't be incentivizing people to buy and sell cars, ultimately leads us down a path towards destruction. It's what John McCain told John King this morning, that ultimately we're leaving this burden on our grandchildren. YELLIN: Next generation. Karen, before I ask you the question about Cash for Clunkers, let's hear to what Alan Greenspan had to say about it. He's giving the program a thumbs up.

(BEGIN VIDEO CLIP)

GREENSPAN: It's a very important indicator that the state confidence in the economy is starting to pick up. If the clunker program had been put in place six months ago, it would probably have been a dud.

(END VIDEO CLIP)

YELLIN: So is the Cash for Clunkers program a positive economic indicator? TUMULTY: I don't know. The phrase irrational exuberance. I do think we shouldn't be surprised that when you give people money, they take it.

CILLIZZA: News flash.

TUMULTY: But in the auto industry, bailout was the assumption that there is something different about this industry, that it is strategically important to this country, and somebody might point out Michigan, and so I do think that this is, it is a, it does show that when the government gives out money, people respond.

YELLIN: This morning, Senator Jim DeMint said that there might be a filibuster, he might consider filibustering the Cash for Clunkers program. There could be some Republican resistance, but this is going to get through Senate, isn't it?

BAKER: Most likely. I mean look in the end, as Karen said, it is money, and it is money to very, very tangible constituents. You can point to specific people who get it. The interesting thing here too is will this achieve its other goal, which is to say changing the environmental dynamic right now, and with all these cars on the road that are belching out bad fumes, does this make a difference in the end? This is much more than they anticipated, what difference does that make in terms of climate issues these days?

CILLIZZA: You know, one quick thing, Jessica. So much of the economic recovery is based on perception, in a lot of ways, that the American public trusts the Obama administration to get this done.

One thing about the Cash for Clunkers program you wonder about, and we haven't seen polling, it just happened. But you wonder about, do people say, wait a minute, do they know exactly what they're doing here? We went through $1 billion in four days. The consumer confidence, so much of it comes from the fact they trust and believe in President Obama's ability to handle this problem in a way they didn't with George W. Bush.

CILLIZZA: Is that eroded in any way, shape or form? It's not anything we can know immediately. It may not be anything we know at the end of the summer, but it's something to watch, I think.

YELLIN: And you know, this brings to mind something that Christina Romer, Dr. Romer, said this morning. I asked her about some of the president's prescriptions for fixing the economy. They included the stimulus, mortgage reform, refinancing, and reforming the financial system, giving Wall Street new rules. Two of the three of those have gone nowhere, Karen. Do you think this is going to become a problem for the administration if they don't fix housing, which drove us into this economy, and getting tough on Wall Street?

TUMULTY: Well, I do think that the president is right that this whole problem requires a holistic fix. You can't sort of deal with one piece of the economy and assume that everything else is going to follow. But at the same time, I do think it's part of the reason why they are having the political problems they are now, because it is just too much, I think, for people to take in and to not lose some confidence over.

YELLIN: Well, on the one hand you need to have a holistic approach. On the other hand, it's a grab bag. I mean, Romer said this morning, our three-legged stool has turned into a four or five- legged stool.

BAKER: It's a metaphor that probably ought to be retired. It's hard not only for the public, but it's hard obviously for lawmakers who in the end, the president can throw out a lot of proposals, but it's a fairly firm concrete pipeline when it goes to Capitol Hill, and there's only so many things, the say, a Finance Committee can deal with all at once.

And the longer these things stretch out, this is why Barack Obama was concerned about this August deadline, the longer these things stretch out, the easier it is for opponents to pick away at them, to drag them down, to point out the flaws and to get people to have questions, particularly if President Obama's numbers continue to go down.

YELLIN: Well speaking of which, let me do a quick down the line, 10 seconds each. August is ahead of us. Health care, there are going to be a number of ads all over the airwaves. Who is benefited by this August pause to reconsider health care, the critics of health care or the administration? BAKER: Well, that's a very good question. The president will have an undiluted bully pulpit in August. The Congress will be out of town, won't be talking about it. But the real test is going to be when these members go back to their districts, what are they hearing in these town hall meetings? What are their constituents telling them? I want health care or I'm too tired or this is too much. And I think that has a real potential to drag things down in September, but we'll see how well the president can use his advantage.

YELLIN: OK, I wanted to go down the line, but we really have to get to this next topic before we go. Peter said everything we need to know, right? Sarah Palin, we cannot leave without addressing Sarah Palin who has resigned the governorship. We asked John McCain his view of her decision to step down. Let's listen to him.

(BEGIN VIDEO CLIP)

MCCAIN: Sarah, I think, made clearly the best decision. I think she will continue to contribute. I think she will continue to be a force, and I just also continue to kind of be saddened by the fact that there are still such vicious attacks on her and her family. I've never seen anything quite like it.

(END VIDEO CLIP)

YELLIN: Karen, she'll continue to be a force. Will she be a political force in the Republican Party?

TUMULTY: Oh, I think absolutely. The question is whether she herself understands how to martial that force.

YELLIN: And Chris, has the media, everyone been too mean to her?

CILLIZZA: You know, I think there is a way to separate has the media covered her aggressively and are there a lot of untrue and unsubstantiated rumors on blogs, god forbid, since I write one. I don't want to badmouth blogs, but yes, are there things out there that are unfair to Sarah Palin, that are promulgated as truth? Yes. Has she given the media many reasons to be skeptical about the way in which she has gone about ending this phase of her political career and beginning the next? Yes. YELLIN: OK, thanks you guys. We could go on for a long time, but I've got to wrap it. Peter Baker, Karen Tumulty, Chris Cillizza, thanks for joining us.

And when we come back, we'll meet a doctor who does house calls on a Harley. "State of the Union" continues in a moment.

(COMMERCIAL BREAK)

YELLIN: Every so often, the people you seldom see at CNN, photo journalists, producers, other staffers put together their own stories, a series called "In Focus." It makes for refreshingly different points of view. Deborah Brunswick from our New York assignment desk introduces us to Dr. Dave and a new kind of health care co-op. (BEGIN VIDEOTAPE)

DR. DAVID ORES, STARTED HEALTH CARE CO-OP: I like motorcycles because it's like a roller coaster that goes anywhere. Most doctors don't have motorcycles or tattoos and do non-profit work and that's kind of sad because it's really fun. My name is Dr. David Ores, and I've been practicing medicine since 1987. I'm here today to talk for a couple of minutes about the restaurant health care cooperative which is health care for all of you guys. I started the health care cooperative six or eight months ago. It's a little local community health system that provides not for profit health care for people who work in restaurants. You can move pretty good. The restaurants, that is the owners and management contribute a small amount of money every month into a common fund and then that fund is used to treat the workers and staff with any kind of medical issue or problem they have. Hey, it's Dr. Dave.

BILLY GILROY, RESTAURANT OWNER: We want to take care of our people, but financially we're only capable of doing so much. This is so affordable. It's like such a win-win that we're really excited about it because you feel like you're being part of something that could really change things.

UNIDENTIFIED MALE: I'm not too cliche, I suppose, but obviously, he cares a lot about his patients.

ORES: Is it painful doing that?

UNIDENTIFIED MALE: The hospitality industry is a big industry. It's part of New York City. So it's great that somebody is sort of looking out for their backs.

ORES: The last 10 to 15 years, I've seen lots of people from these places who have no help, they have nowhere to go, no one to turn to. Somebody needs to tell them and probably lots of other people too, but you have to start somewhere. I think the big idea of not for profit is what I'm trying to get out there. The fact is restaurant workers is one thing, but this not for profit notion could work in any industry. I think it is special, I think it is great. But it disheartens me that it is those things. It really should not be special, it should not be great, it should be the way things work.

(END VIDEOTAPE)

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