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STATE OF THE UNION WITH JOHN KING

National Security Advisor Weighs in on Afghanistan; Senators Weigh in on Afghanistan

Aired October 4, 2009 - 12:00   ET

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


JOHN KING, CNN ANCHOR: We'd like to welcome back our international viewers. I'm John King, and this is STATE OF THE UNION.

(BEGIN VIDEOTAPE)

KING (voice-over): A high-stakes debate on Afghanistan. The president convenes his national security team in private while the commanding general makes a public appeal for more troops. The divisions among trusted advisers complicate a critical wartime strategy decision.

We get an insider's perspective from the national security adviser, General James Jones.

UNIDENTIFIED MALE: I want a bill that will become law.

KING: And as health-care changes advance in Congress, key questions remain on taxes and costs. Plus, the president's critics on health care could be his best allies on Afghanistan.

Insights from two leading senators, Republican Whip Jon Kyl of Arizona and Democrat Barbara Boxer of California.

UNIDENTIFIED MALE: I feel good to be back to work.

KING: Then with the unemployment rate rising again, our "American Dispatch" from the North Dakota prairie, a mix of optimism and anxiety in a small town where one factory makes all the difference.

The nation's highest jobless rate and a $3 billion budget shortfall. Michigan Governor Jennifer Granholm gets "The Last Word."

This is the STATE OF THE UNION report for Sunday, October 4.

(END VIDEOTAPE)

KING: We begin this Sunday with the global pressures facing the Obama administration and with fresh reminders of the enormous stakes.

Eight American servicemen were killed today in a fierce gunfight near Afghanistan's border with Pakistan. This as the president decides whether to grant his commanding general's request for thousands more troops.

And the United Nations nuclear watchdog says Iran has agreed to allow inspectors to visit its newly-revealed uranium enrichment facility in three weeks. The stakes there magnified by an alarming new report suggesting Iran is closer to developing a nuclear bomb than the United States and its allies have acknowledged.

Perhaps no better time to start the day with the man helping the president weigh these enormous challenges, the national security advisor, retired Marine Corps General, James Jones.

General, welcome.

GEN. JAMES JONES (RET.), NATIONAL SECURITY ADVISOR: John, thank you.

KING: Let's start as Americans awake to this sad news. Eight more Americans killed in Afghanistan in what is described as a fierce gunfight up near the Pakistan border. Let's start with the threshold question, nearly eight years after that war began, how long? How long will Americans be fighting in Afghanistan?

JONES: Well, John, as you know, we have been there a while, and our allies have been there with us. Forty-two countries, NATO, all of the major organizations of the world, from the U.N. to NATO, the E.U., 68,000 U.S. troops, now closing 30,000 allied troops and close to 100,000 Afghan troops. So it's a -- it's a robust force.

I think the strategic decisions that the president is considering right now in the wake of the March decisions and the conference that we had in the White House are really the topic of the moment, and that will set the stage for what happens in the future.

KING: Set the stage. So you don't see the end in sight now?

JONES: Well, I think the end is much more complex than just about adding "X" number of troops. Afghanistan is a country that's quite large and swallows up a lot of people. The key in Afghanistan, as we said back in March, is to have a triad of things happen simultaneously.

Security is obviously one reason, one important thing to take care of. But these -- the other two are economic development and good governance and the rule of law. And on that -- on that score, we have a lot more work to do in, and the Karzai government is going to have to pitch in and do much better than they have.

But underlying that is, of course, the effort to build up the Afghan national security force, the police and the army, and that will -- that will be an important part of whatever we decide to do.

KING: Let's walk through some of the challenges. As the head of the National Security Council, you are leading these discussions. One of the big questions is, does the return of the Taliban, if the United States were to have a smaller footprint or come out of Afghanistan altogether, and the Taliban was resurgent, does the return of the Taliban in your view, sir, equal the return of a sanctuary for al Qaeda? JONES: Well, I think this is one of the central issues and, you know, it could. Obviously, the good news that Americans should feel at least good about in Afghanistan is that the al Qaeda presence is -- is very diminished. The maximum estimate is less than 100 operating in the country. No basis, no ability to launch attacks on either us or our allies.

The problem is, the next step in this is the sanctuaries across the border. But I don't -- I don't foresee the return of the Taliban, and I want to be very clear that Afghanistan is not in danger, imminent danger of falling.

KING: Do you believe that we could succeed in Afghanistan with a smaller footprint, as some have said Vice President Biden once discussed vigorously, as in special forces, use of drones, not as big of a footprint on the ground, not 68,000, and certainly not 100,000, but actually fewer American troops on the ground? Could we succeed that way?

JONES: We will be examining different options, and I'm sure General McChrystal and General Petraeus and Admiral Mullen will be willing to present different options and different scenarios in this discussion that we're having.

I want to be clear that we have agreed on a strategy back in March. That strategy still obtains (ph). The McChrystal report is his initial assessment on how to best support that strategy.

KING: He has campaigned, General McChrystal has, quite publicly, a big speech in London the other day for his plan. If the president decides, "No, I'm not sending more troops to Afghanistan," you have been in that position yourself, sir, as a commanding general. Could General McChrystal stay on if the president said no?

JONES: Again, that's another hypothetical that I probably...

KING: Would you?

JONES: I shouldn't -- I shouldn't judge what General McChrystal is going to do or not do. I am absolutely convinced that General McChrystal is in it for -- you know, for the long haul. He has said so publicly and privately. So this is not a -- this is not -- I don't think this is an issue.

I think -- I think the real issue here, and this is important, John, the real issue, I think, is how we -- we make all of the things that have to work together function in Afghanistan. And this is a strategic moment. And I think that we have an election that we have to get through and certify, the legitimacy of which is important for the people of Afghanistan.

We have really three things that have happened since March. One is we've had the election, and we're -- we're getting to the point where, hopefully, it will be certified, and it will be seen as legitimate. That's very important.

We've had General McChrystal's assessment, which says the Taliban is doing better than he thought in the situation, and that is good.

And then the third thing that's happened, and this is a theater impact that's very important, is that the Pakistani army and the Pakistani government has done much better than anybody thought they would do since march. So that changes the game a little bit in terms of the regional configuration.

I've said earlier that the presence of the Taliban -- I'm sorry, al Qaeda in Afghanistan is virtually -- is minimal. So we have these safe havens to deal with. We're working very closely with the Pakistani government and the Pakistani army to try to -- to try to help them get rid of the insurgency problem on their side of the border. If that happens, that's a strategic shift in the region.

KING: The president sat down face-to-face with General McChrystal the other day on Air Force One in Europe. Did he express any disappointment that the commander has been so public? Essentially many in Washington think, almost putting the commander in chief in a box by publicly saying, "I need these troops?"

JONES: Well, I wasn't there, and -- and what happened between -- the conversation between the -- and I've not spoken to the president since he talked to him, so I can't comment on the conversation.

KING: Is that an appropriate -- would you act that way as a commander? Do you think -- is it at all unseemly that the men in uniform, and I know, sir, you wore the uniform for many years, that they are out openly campaigning for this one? It's on an open question for the president?

JONES: Ideally, it's better for military advice to come up through the chain of command and I think that General McChrystal and the others in the chain of command will present the president with not just one option, which does, in fact, tend to have a forcing function, but a range of options that the president can consider.

And as I said, and forgive me for repeating myself, troops are a portion of the answer, but not the total answer. It's this coordination that has to...

KING: But you know you have some critics. Having seen general McChrystal made his case publicly, having spoken to General Petraeus, having been to the region, some Republicans including Senator John McCain say that you, sir, and others in the White House are playing politics with this decision. I want you to listen to Senator McCain.

(BEGIN VIDEO CLIP)

SEN. JOHN MCCAIN (R), ARIZONA: It's well known, it's broadcast all over television, that there are individuals, including the vice president of the United States, now, unfortunately, the national security adviser, the chief political adviser to the president, Mr. Rahm Emanuel, who don't want to alienate the left base of the Democrat Party.

(END VIDEO CLIP) KING: Is that a factor in the White House, rising Democratic opposition to sending more troops to Afghanistan? Do you, sir, say, "Mr. President, no more troops because of politics," as Senator McCain says?

JONES: Senator McCain knows me very well. I worked for Senator McCain when he was a captain. I've known him for many, many years, and he knows that I don't play politics with national -- I don't play politics, and I certainly don't play it with national security, and neither does anyone else I know. The lives of our young men and women are on the line.

This is -- the strategy does not belong to any political party, and I can assure you that the president of the United States is not playing to any political base. And I take exception to that remark.

KING: A quick break. We'll be back with more with General Jones, the national security adviser, in just a minute. We'll discuss a new report suggesting Iran is closer to a nuclear bomb than you might have thought.

(COMMERCIAL BREAK)

KING: We're back now with national security adviser and retired Marine Corps General Jim Jones.

General, I want to start with this alarming headline in "The New York Times" today. Reports say Iran has data to make a nuclear bomb. If you read this in detail, it says essentially that Iran has cracked the code. It knows now how to make a smaller warhead. That it is closer to being able to build a bomb, a workable nuclear bomb and deliver it than the United States intelligence assessment that is public and those of some of our allies.

Is that a fact? Are they closer to a bomb that has been publicly acknowledged?

JONES: No, we stand by the reports that we've put out. I think you're going to get a lot of speculation, one way or the other, but I think that what's happened with regard to Iran in the last couple of weeks has been very significant.

And I think that they've recently announced that they will open their facility for inspection -- I think, on the 25th of October, as a matter of fact, in Qom. And then again, when they meet again on the 19th of October, they will be discussing the methodology by which they transfer about 1,200 kilos of low enriched uranium to Russia.

KING: How do we deal with the trust issue there? The president said he wanted inspectors in in two weeks, they've cut this deal, they will go in three weeks from today.

Are you reasonably assured? Do you have verification measures in place? Can you see them if they try to move things out of there, if they try to essentially doctor the evidence before the inspectors get there? JONES: Generally, we have -- I mean, generally, yes. But I think there's no substitute for inspections and verification and the fact that Iran came to the table and seemingly showed some degree of cooperation, I think, is a good thing.

KING: I'll get you on a couple other questions. Two months ago, you were on "FOX News Sunday" and you said, "I'm confident we'll be able to meet the deadline to close Gitmo within one year." Since then, people -- Secretary Gates, others you've served with have said, probably not.

Do you think you'll meet that one year or is that going to slip?

JONES: We're still going to -- we're hard at work on it and we're working not only internationally, but also nationally. And I still hope that we'll be able to meet that deadline.

But the important thing is that the president has committed to closing the facility. It's turned out to be harder than we thought, but ultimately, I think that -- we think that Gitmo is a symbol for what it represents, has to be closed, and we'll find the solutions.

KING: You're national security adviser at a time of two wars, in Afghanistan and in Iraq. And there's a big question about a promise the president made in the campaign, ending the "don't ask, don't tell" policy about homosexuals serving openly in the military.

The Senate majority leader, Harry Reid, sent the president a letter this past week in which he says, "At a time when we are fighting two wars, I do not believe we can afford to discharge any qualified individual who is willing to serve our country. Many members of Congress, like me, support the repeal of 'don't ask, don't tell.' As Congress considers future legislative action, we believe it would be helpful to hear your views on policy."

They want the president to get involved. Is it time now, as soon as possible, to change that policy?

JONES: The -- the president has an awful lot on -- on his desk. I know this is an issue that he intends to take on at the appropriate time. And he has already signaled that to the Defense Department. The Defense Department is doing the things it has to do to prepare, but at the right time, I'm sure the president will take it on.

KING: No idea when the right time is?

JONES: I don't think it's going to be -- it's not years, but I think -- I think it will be teed up appropriately.

KING: Let me ask you, lastly. It's our first time saying hello here on the program. Obviously, you're worried about Afghanistan. You're worried about Iraq. You mentioned North Korea, the nuclear issues, the Middle East.

When you go to bed at night and you look at the map, what keeps you up? Is there something we're not paying attention to? Is it Yemen? Is it Somalia? Is it somewhere else in the world where you say, "You know what? I know we have to do all this, but this one worries me"?

JONES: There are a lot of things that keep me up at night, but if I had to pick one that I -- that I thought was most -- most alarming, it's the question of proliferation and weapons of mass destruction falling into terrorists' hands.

Generally, nation states, once they have the capability, can be controlled a little bit more. But if we -- if we lost, you know, track of nuclear weapons or other weapons of mass destruction and came into the hands of a radical terrorist group, they would use them. And that -- and that bothers me a great deal.

And that's why this question of proliferation is probably central to how our children and grandchildren are going to live in this 21st century. And that we have to do a better job of explaining to our friends and allies how serious this is. And that's why, I think, the pursuit of organizations like Al Qaida, wherever they are, has to be an international effort, and we have to be successful.

KING: General Jim Jones, the national security adviser. Sir, we thank you for your time today here on the program.

And up next, two leading senators take us inside the congressional debate over sending more troops into volatile Afghanistan. Stay with us.

JONES: Thank you.

KING: I appreciate it. Thank you. Nice to meet you. Thank you.

(COMMERCIAL BREAK)

KING: I'm John King and this is STATE OF THE UNION. Here are stories breaking this Sunday.

Eight U.S. troops and two Afghan forces have been killed in Eastern Afghanistan. Authorities say militants attacked two security outposts in Nuristan province near the Pakistani border. The deaths come as President Obama considers whether to pour thousands of more troops into Afghanistan.

United Nations inspectors will visit Iran's recently-disclosed uranium enrichment facility on October 25. The head of the United Nations nuclear watchdog group made that announcement today in Tehran. At a news conference, Mohammad ElBaradei says his agency has no concrete proof of an ongoing weapons program in Iran but says it does have concerns about Iran's future intentions.

Search teams from around the world are now in Indonesia, helping to find victims of Wednesday's devastating earthquake. They're digging through tons of rubble where hundreds, perhaps thousands of people may be buried. There are more than 600 confirmed deaths.

Those are your top stories here on STATE OF THE UNION.

Joining me now here in Washington, Democratic Senator Barbara Boxer of California. She's a member of the foreign relations committee. And back in his home state of Arizona, the Senate's second-ranking Republican, Jon Kyl.

Senators, thank you both for joining.

Senator Boxer, I want to start with you. You just heard General Jones, the national security adviser, talking about the debate about whether to send more troops into Afghanistan. Let me just ask you a simple question. If the president says yes to General McChrystal and sends thousands more, perhaps as many as 40,000 more U.S. troops to Afghanistan, would you support that?

SEN. BARBARA BOXER (D), CALIFORNIA: I'll make a decision when I know, A, what the president wants to do; B, whether this is a consensus; and C, whether I think it's the right thing to do for our nation.

I thought the most important thing that you asked General Jones is what keeps you up at night. And he was so eloquent when he said it's the thought that terrorist groups could grab hold of a weapon of mass destruction. I agree with him. And that's why I think it's important, as we look at Afghanistan policy, is it about building the nation of Afghanistan, or is it about protecting our nation and the world from a terror group like al Qaeda regaining a hold? So I'm looking at that.

KING: Do you believe there should be a time line, whether or not there are more troops?

BOXER: I think, again, I just voted to say yes to the 22,000 troops we just sent there, but I do believe we need to have an end game, and we need to have a strategy that's clear.

And I take it back to what the general said, because that's where I'm leaning. We've got to, you know, finish the business that we started. I voted to go into Afghanistan. I voted no on Iraq, because I felt we were walking away from what we needed to do, getting bin Laden and crushing al Qaeda.

Now, we're making great strides on that. But the Taliban do worry me, because they were a host to al Qaeda. So I'll be looking at all this, and you'll be the first to know when I make my decision.

KING: Come right back in.

Senator Kyl, when you listen to General Jones, it is very clear that there are forces within the White House who are very skeptical, if not opposed, to General McChrystal's request. When you have the commanding general out in public saying, "I need these troops, and I need them as soon as possible," are you comfortable with the wait and the strategy review inside the White House, or should the general get his troops? SEN. JON KYL (R), ARIZONA: I think we have to hear what the general recommends and, unfortunately, that recommendation was, at least, partially leaked.

And then the people in the White House need, instead of being armchair generals themselves, need to consider what the expert has recommended. And it's not just General McChrystal but also General Petraeus. And if they believe that, to have an effective counterinsurgency strategy, we need to have a surge of troops, as we did in Iraq, then I would lean strongly in favor of -- of getting them the troops that they need.

The other factor here is that General McChrystal has made it clear that time is of the essence. And I don't think we have a great deal of time to sit around and have a big debate about this. In the middle of a war, you frequently have to make decisions quickly. In the fog of war, when you're not even sure exactly sure how everything is going to work out.

But the enemy gets to play at this, and as Senator Boxer just said, the Taliban are a big consideration here. I think almost everybody agrees that, if we were to pull out, the Taliban would take over again in Afghanistan. And that's the biggest threat of allowing al Qaeda, then, to have a base from which it can operate.

KING: Well, Senator Kyl, what does it say to you -- I'll let you in in one second, Senator -- what does it say to you that General McChrystal apparently feels compelled to make his case publicly?

KYL: He was the commander of Special Forces for five years. If anyone knows what is necessary to succeed in Afghanistan, he does. He is the commanding general there and he's been asked questions about it, and I think he's answered those questions appropriately.

I think the question really ought to be turned around. And that is, if we know that the commanding general has recommended more troops to win in Afghanistan, if we know that time is of the essence, then why are we, in effect, having this big public debate about it, and why can't we make a decision that would enable us to get those troops in there in order to have an effective campaign next spring? If we delay it much longer, there's a question about whether even sending more troops will -- will do any good.

KING: How would you answer that point?

BOXER: I'm very thankful that we have a president -- by the way, the president is the commander in chief, and he's going to make the decision after he listens to all sides. And I'm very grateful that, before he just rushes off some more troops to Afghanistan, he's going to see the strategy.

Right now there's 20,000 Taliban, and there's 200,000 troops fighting the Taliban. That includes our troops, the NATO troops, other allies, the Afghans themselves. And we want to train another 94,000 Afghans. So it's not a matter of the numbers. It's a matter of the strategy and the goals. And I'm so pleased that we have a president who isn't going to just rush forward. He's the commander in chief. Everything is on his shoulders, and he's going to do it after he's heard from all sides.

KING: Let me shift to Iran. There's the issue of the inspections at this newly-discovered, newly-revealed uranium enrichment plant, but there's also this front-page story in the "New York Times" today that General Jones seemed to downplay. He said he didn't really believe it.

But that report, a U.N. report, says that they believe that Iran has cracked the code, essentially, and they now have the technology and the data to make a smaller warhead, which of course, is easier to deliver.

Do you believe "The New York Times" or do you believe General Jones?

BOXER: Well, I know General Jones' resume that he brings forward, and I would lean toward General Jones. But you know what? Whether one report is right or another, Iran's a big problem, a major problem. And we have to get the world with us.

And we have had a bit of a breakthrough. You know, they were caught with this Qom facility, and we're going to go in there and look at it. This is very key. And we have to, of course, not trust but verify.

I'm on a bill that would increase sanctions in a major way. It's a Bayh bill, an Evan Bayh bill. I think it's important. It would stop refined petroleum from getting into Iran.

I think Iran's a problem. I don't trust them at all. I mean, they never would have told us about Qom. It just -- we found it out because of our surveillance. So I think it's very serious, and I'm glad that the president is focusing on getting the whole world so that we can get in there, because I think that's a big step, getting in there.

KING: And Senator Kyl, should Congress go ahead with that sanctions debate, or should it wait and see what happens with this diplomacy and the inspections? Or should Congress say, no, we're going to put some sticks on the table as this plays out?

KYL: Putting sticks on the table is exactly the point, John. That's a Bayh-Lieberman-Kyl bill, and we do have 76 co-sponsors in the Senate now.

I think we should go forward with it, because it goes right at the heart of where Iran is weak right now. They have to import about 40 percent of the refined. petroleum into the country. And this would tell the companies that sell them that refined gasoline that they can't do that anymore. That would put pressure on the regime.

And the problem is, the Iranians never respond to anything except pressure. It wasn't until the French and the British and the Germans joined us and said, we will put -- and the Russians sort of hinted that they might go along, that the Iranians agreed to sit down and maybe agree with us on some things.

But what they always do is respond to pressure, and then when the pressure eases, they back off. What they need is time. And, unfortunately, I'm afraid that what they've gotten with these negotiations is more time to do all the things in secret that they do and then gradually open facilities up like Qom that we had discovered some months ago, after they've had a chance to clean it up, and we probably won't find a whole lot there.

KING: A dose of skepticism there from Senator Kyl. We're going to take a quick break. When we come back, we'll turn to domestic issues.

Will a health care bill pass the Senate soon? And what did the president mean when he said just the other day, he's going to look at new options to create more jobs? Stay with us.

(COMMERCIAL BREAK)

KING: We're back with Democratic Senator Barbara Boxer of California and Republican Senator Jon Kyl of Arizona. I want to get to the economy and health care, but I want to start with an issue that is an internal matter in the Senate right now.

But a Republican colleague of Senator Kyl's, John Ensign of Nevada, back in June acknowledged an affair with a staffer. And then there were some stories about whether there was some effort to cover that up. But The New York Times had a big story on Friday showing that he went to extraordinary lengths, Senator Ensign did, to help the husband get a job back out in Nevada, and there were questions about whether there were improper lobbying contacts.

You are the chair of the Senate Ethics Committee. What are the issues that we need to look at?

BOXER: Well, it's because I'm the chair of the Senate Ethics Committee that I can't discuss this with you, other than to say that there is a preliminary investigation going on and we will look at all aspects of this case, as we do whenever there's a case before us and try to get to the bottom of it as quickly as we can, in fairness to all.

KING: Can you lay out the issues you're looking at?

BOXER: No, I'm not permitted, according to the rules, I'm sorry.

KING: OK, you're not permitted.

Senator Kyl, your leader, Mitch McConnell, was peppered by reporters with questions the other day, asking him, you know, can Senator Ensign stay on? He was in the leadership, he has stepped down. Do you believe that it would be best for him to step down, or can he serve effectively and wait this out? KYL: You know, I served on the Ethics Committee in the House of Representatives and we had the same rule there. And I respect what Senator Boxer said and I think that's probably a good practice for all of us, is to wait and see what happens.

KING: Wait and see what happens. All right. Let's move on.

When the president came back from Copenhagen the other day, he came back to news the unemployment rate had gone up to 9.8 percent; the economy shed more than 260,000 jobs. A higher number, more disappointing number than most economists predicted. And the president said that, of course, he was going to do everything he could to help any American who needed work find work, and he added this.

(BEGIN VIDEO CLIP)

BARACK OBAMA, PRESIDENT OF THE UNITED STATES: I'm working closely with my economic advisers to explore any and all additional options and measures that we might take to promote job creation.

(END VIDEO CLIP)

KING: A second stimulus bill necessary, Senator Boxer?

BOXER: Don't know whether it would be that. It could be moving forward with an energy bill, which I'm very excited about and would actually, I think, allow this economy to take off, because it would draw, not federal funds, but private funds.

Venture capitalists in California, my home state, tell me that as soon as we move forward with some kind of bill that talks about energy independence and climate change, that that would send a long-term signal that they would invest more than twice as much as they invested in high-tech and biotech combined.

KING: Senator Kyl, we had a partisan debate over the first stimulus package; the health care debate has been pretty partisan so far. What could the president do in terms of job creation in which Senator Jon Kyl, conservative Republican of Arizona, would say, "amen, Mr. President, I'm with you"?

KYL: First of all, don't be pushing bills like cap and trade, which are big job-killers. Don't be pushing a huge, expensive health care bill that will cause jobs to be lost, especially in the small business sector, because of all of the taxes that are imposed in that sector. And third, don't allow taxes to go up.

In fact, targeted tax relief for Americans would be the quickest way out of this recession.

KING: And it is not just Senator Kyl, Republican, who has questions and criticisms of your climate change bill. Jay Rockefeller, a more liberal Democrat from the state of West Virginia, a coal-producing state, says your legislation is a disappointing step in the wrong direction. He says the auto industry simply can't get there, the emissions. And he says the coal industry, the energy industry simply can't get there. He says too much, too fast, and it would hurt, not help.

BOXER: Well, what the people want is for you to try. And when I have venture capitalists telling me they're ready to pour multi billions of dollars into clean energy to get us away from this billion dollars a day, exporting our dollars to foreign oil, I think they ought to be listened to.

And the biggest -- one of the biggest tax cuts was in the stimulus. We gave a tax break right into the pockets of working people. And my friend voted against that. It's the "party of no." The same answers, give breaks to the wealthy. It doesn't work.

KING: Well, let me see if I get a yes or no out of you. The health care bill coming out of the Finance Committee, it's not done yet, but the version the Finance Committee will act on does not contain a public option.

Would you support legislation in the end that does not? If the votes aren't there, would you say, I will take 70 percent of a loaf instead of walking away? Or would you say, no, that's so fundamental I'll walk away from this?

BOXER: What's fundamental to me is a way to bend that cost curve and keep the insurance companies honest. The public option...

(CROSSTALK)

KING: Let me jump in. We're about to run out of time. Let me jump in.

Senator Kyl, I want to give you the last word in this debate. You don't like the bill in the Finance Committee. You endured the hours of the hearings. You were there for most of them. You offered -- on the floor, when this gets to the floor, Governor Jindal, the Republican governor of Louisiana, said this week, it's time for Republicans to pivot and don't just say what we're against, to be more open about pushing what you're for.

What is the challenge for Republicans on the floor of the Senate and continuing on in the health care debate? Is it just to block what the president wants, or will you put something up?

KYL: We've been putting things up in the committee, and the other "party of no," the democrat party, voted no on any every one of our amendments.

And, you know, we started with medical malpractice. Almost everybody agrees that we can save between $100 billion and $200 billion if we had effective medical malpractice reform. Of course, the other party said no to our amendment.

The biggest tax of all, according to the Congressional Budget Office, would be the taxes imposed in the health care bill in the Finance Committee. As they pointed out, all of the taxes that are imposed, both on individuals directly, as well as on the providers of health care and the insurers of health care, are passed on to the employees who have it and to the people who buy the policies through premium increases.

So if you're concerned about paying too much for health care then don't support the bill that came out of the Finance Committee because it represents a huge decrease both in taxes and premiums on Americans and for seniors, a $500 billion cut in Medicare. And of course seniors are rightly to be very concerned about that.

KING: We will talk more about this as it reaches the floor, I assure you. We're out of time on this day. Senator Jon Kyl of Arizona and Senator Barbara Boxer of California, thank you both for coming in this morning.

And up next, we'll talk to the governor of the state with the nation's highest unemployment rate, Jennifer Granholm of Michigan gets "The Last Word," next.

(COMMERCIAL BREAK)

KING: Sixteen newsmakers, analysts and reporters were out on the Sunday morning talk shows, but only one gets "The Last Word." That honor today goes to Governor Jennifer Granholm, Democrat of Michigan. Governor, thanks for joining us.

You are here for sad circumstances, in some way. Your state has the highest unemployment rate in the nation. So I wanted to put to you this question. The president returned home the other day and said with the national rate now up at 9.8 percent, he's asking his advisors, what more can we do to create jobs in this country? Give him some advice. Should it be a second stimulus package with more government spending or should it be a mix of tax cuts aimed at manufacturing and job creation?

JENNIFER GRANHOLM (D), MICHIGAN: I think he's got to do offense and defense, John. Frankly, I think if passing a health care bill which will help manufacturers, help job providers across the country because you'll have a shared responsibility for the costs that other businesses in other countries don't have. That will be one thing.

I do think that a climate change bill that will create manufacturing opportunities in the United States is critical. We can make things. We need to be the place, the nation and frankly Michigan needs to be and intends to be the state that leads the world in finding the solutions to energy independence and making those products. But I also think it's really important to play defense as well, defense in the sense of enforcing trade agreements that you adopt so that you're not giving away the store.

And you can do what a lot of states are doing, which is to provide targeted tax incentives to make a good business case for businesses to locate in this nation.

We're really trying to diversify our economy because we've been in the middle of an auto recession that obviously explains our huge unemployment rate, unacceptable unemployment rate. But we have been really focused on adding new sectors to this auto economy, and we use a lot of tools including tax incentives to be able to do that. So I think that the Feds can do a similar thing, partner with the states on doing that. Frankly, very quickly, John, what the Obama administration did in the stimulus package by providing a new sector in the form of battery technology for vehicles to electrify the vehicles, Michigan got more than half of those grants. It's one of the sectors we are adding in Michigan. But that partnership between the government and the private sector to create new industry and new jobs is critical.

KING: I've got up to go over to our map because I want to give our viewers a better sense of your state. As I zoom in on Michigan, I'll show this first. The national unemployment rate, 4.6 percent back in January 2008. The glory days we look at those. Now, 9.8 percent nationally now. Governor, in your state, 15.2 percent, the latest numbers.

As you noted, nearly 200,000 manufacturing jobs lost in the last two years, 45,000 construction jobs lost in the last two years. Former chairman of the Fed Alan Greenspan today said there's no doubt in his mind the national rate will go up from 9.8 and crack 10 percent. If you're at 15.2 percent and the national rate is going to keep going up, is Michigan on a path for 20 percent unemployment?

GRANHOLM: Well, we sure as heck hope not, but we do know that the residue of this restructuring in the automotive and the manufacturing sector is still hitting the suppliers to the auto sector. I mean, they are essentially -- they've been I don't want to use a harsh term, but it's true, they've been red-lined by the banking industry who got all of this TARP money and who now won't provide the means for the suppliers to the auto industry to either diversify themselves or to get back on their feet.

So we're finding we are struggling in Michigan because we have so many auto suppliers who intend to diversify. We've had 1,000 auto suppliers show up at auto supplier diversification conferences around the state. When I say that, I mean these auto suppliers who currently make parts for cars, they can be making parts for solar, the wind industry, the biofuel industry, but they need to be able to access capital to do that.

That access to capital has been a big challenge, and that's one of the reasons why Michigan's unemployment rate is so much higher. We just happen to have more of those types of businesses than any other state in the country. But we are not going to sit around and whine about it, John.

Let me tell you we are focused on adding new sectors. This is why it's critical to partner with the federal government. And whatever the Obama administration decides to do about adding jobs, I know that they are going to do it in areas that will help to make our businesses in this country more competitive, and I hope that they intend to enforce these trade agreements to keep jobs in this country.

KING: You mentioned the climate change debate in Washington here. Senator Kerry, Senator Boxer, put forth a bill last week. And if you read it, essentially what it says is Americans would either need to stop driving their cars by one-third or the auto industry would have to drastically improve fuel efficiency standards pretty quickly, almost overnight. Are you in favor of that or is that too much shock to the system for your big employer right now?

GRANHOLM: I don't know the specifics of their bill, but I can tell you we are all about leading in this area. We used to be considered luddites, that we were opposed to fuel efficiency. And that's true in the past. This is not your father's auto industry anymore. They are really focused on the electric vehicle. The Volt, General Motors new electric vehicle that is going to be coming to market in 2010, it's going to go over 230 miles to the gallon.

If we can electrify the vehicle, you will see a complete eliminate or certainly a huge lessening of our reliance on foreign oil. That's a huge step. But you have to be able to make those cars affordable. So one of the things that the federal government has done and must continue to do, in fact, enhance, is to give people the ability to buy those vehicles by giving them a tax credit or some incentive to purchase the electric vehicle.

Those early electric cars are expensive. The technology is expensive. Taking it to market is expensive. Taking it to scale is expensive. We're doing all of that in Michigan.

We've created a whole new industry. More than half of all the battery grants that the Obama administration gave out are in Michigan. So we are all about it. We're all focused on it. We want to leap.

But that initial roll out of that technology, just like when the computers came out initially, they were expensive. They're going to be more expensive than your average vehicle. So this is why a partnership with the federal government to provide a tax credit in some way or some incentive for citizens to be able to buy those vehicles is a critical part of that strategy or must be included in it.

KING: Let's close on more playful note, governor. You've had kind words for the president there for the stimulus and some incentives he's given you. Right up here, the top corner of the "Lansing State Journal," tigers lose again, lead in central gone. Your Tigers are playing the president's White Sox on the final day of the season. The playoffs could be at stake. Maybe a wager?

GRANHOLM: Of course! The Tigers are going to win. Minnesota is going to lose. The Tigers are going to take the division, and we're going to take on the Yankees and beat them, too.

KING: Well, you just hurt me, right there. You lost me on that one. I don't mind the Tigers winning today, but my Red Sox will see the Yankees I believe down the road a little bit. Or the Tigers. We'll take the Tigers. Governor Jennifer Granholm of Michigan, we thank you for joining us. It's a tough time for your state and we wish you the best.

KING: And up next, we take a close look at a North Dakota company and community trying as Governor Granholm is to survive this painful recession.

(COMMERCIAL BREAK)

KING: Jobs is often our focus in our travels and we know it's your focus as well, especially this past week when we learned the national unemployment rate jumping up to 9.8 percent. Let's put the numbers in perspective, 4.6 percent in January 2008. You see the steady climb up to 9.8 percent in September.

The former chairman of the Fed Alan Greenspan says without a doubt in his view, it will crack 10 percent nationally.

Now we went out this week to the state with the lowest unemployment in the country. That is North Dakota. Let me move this out of the way. One year ago, 3.3 percent unemployed rate in North Dakota. Still way below the national average but up to 4.3 percent. What has happened in that year? More than 7,100 jobs lost.

Now much of the economy in North Dakota is farm related but there is manufacturing.

So in our "American Dispatch" this week, we wanted to look up close at why North Dakota has the lowest unemployment rate. What we found is proof that doing better than the national average by no means escaping the pain altogether.

(BEGIN VIDEOTAPE)

KING (voice-over): It is hot hard work, and loud at times. The majestic soundtrack of "made in America," Gwinner, North Dakota, to be exact. Bobcat thrives only when home building booms. North American President Rich Goldsbury says for all the talk of recovery, the housing outlook remains bleak.

RICH GOLDSBURY, PRESIDENT, BOBCAT: We see a bottoming out, but we have not seen evidence of a return to where we were a number of years -- or just two years ago, like 2 million housing starts down to 500,000. For our business and our industry, it's about 70 -- it's down about 70 percent from what it was back in 2005.

KING: For Bobcat, that slump means consolidation. The Bismarck assembly line that employed nearly 500 workers will shut down by years' end. Some work will be shifted and some jobs added here in Gwinner, but by January, Bobcat projects 1,500 jobs in the state, down 100 from current levels and down 1,100 for four years ago.

A sad but necessary adjustment, Goldsbury says, too evident Bobcat's slice of the economy will be slow to rebound.

GOLDSBURY: Now you can get financing for a machine which has -- wasn't happening before. But we haven't seen that yet translate into additional sales for us.

KING: There is other work around here. Agriculture is North Dakota's backbone, and the fall sugar beet harvest provides a jobs boost, but Bobcat is the lifeblood of tiny Gwinner, population 700.

Jeremiah Hinkemeyer runs the supermarket, a stone's throw from the assembly line.

JEREMIAH HINKEMEYER, GROCERY STORE MANAGER: Three times -- different times of the day during shift changes we have Bobcat workers come in here. When I leave work I go over to the school to coach and we wear the Bobcat logo. A lot of people here, you know, graduated high school and went to Bobcat and they've worked there their whole life.

KING: The store is a leading indicator of the local economy. Sales slumped at rumors of Bobcat troubles. And even the plan to shift work here from Bismarck isn't enough to erase the anxiety.

HINKEMEYER: The workers come in here and you can see it in their faces, if there has been talks of a layoff or talks of, you know, the company might not be staying around.

I'm satisfied that they're really trying to stay here, but I think you feel from a lot of people, they're not sure yet.

KING: At the moment, Corey Essig is on the upside of the recession roller coaster.

COREY ESSIG, BOBCAT EMPLOYEE: Shovel that dirt back.

KING: But his family's lesson in the difficult math of unemployment is still fresh, $351 a week was his benefit when Bobcat laid him off five months ago.

(on camera): What was the worst of that?

ESSIG: The worst of that?

KING: Yes.

ESSIG: I'd have to say, probably paying the insurance, health insurance because you need it and my son has a heart condition, so can't hardly go without it. I was paying $440 a month and then you have to start cutting back on stuff like your cell phone, your computer, you know, you have to look at shutting some of that stuff off. And you know, it's buying less food and you have two kids to support and a wife. And it gets pretty trying.

KING (voice-over): But Bobcat just called Corey back to work in the paint room that requires a hooded safety suit.

ESSIG: I think that things will straighten out here, be pretty steady with work now. I don't think -- foresee them moving the company, but you never know.

KING: Rumors of moving or shutting down are often tied to Bobcat's purchase two years ago by a Korean company, but Goldsbury says the owners are proud of their American-made product and of the company's North Dakota roots.

(on camera): And you have full confidence that if I come back in 10 years, this will be here?

GOLDSBURY: Yes, I do.

KING: No hesitation.

GOLDSBURY: No hesitation. We've been here for 60 years. I don't see us going anyplace. This is where we came from. This is our bellwether plant. This is where we started the business.

(END VIDEOTAPE)

KING: Great folks there in North Dakota. We'll see you right back here next Sunday at 9 a.m. for the first and last word in Sunday talk. Take care.

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