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Budget Buzz: Behind the Scenes; White House Prediction: Jobless Rate To Go Down; Toyota Reveals Recall Fix

Aired February 1, 2010 - 17:00   ET


WOLF BLITZER, HOST: Happening now, what the president's massive blueprint means for you, your children and even your grandchildren.

Can he help create more jobs and reduce America's debt?

This hour, we're crunching the numbers and asking tough questions of the White House budget director.

If you own a Toyota that's been recalled, stand by to finally get some answers. The company's executives are now revealing what they're doing to try to fix this huge problem and what you should do next.

And will the trial of 9/11 suspects be moved from New York City or not?

We're looking into some alternatives. And why one mayor says his town would be the perfect host.

I'm Wolf Blitzer.


If President Obama gets his way, the U.S. government would spend more than $7 million a minute. It's another way of fathoming a $3.8 trillion budget. The administration's wish list for 2011 is roughly $100 billion more than the previous year. Congress will make the final decisions and cut the cuts checks. But this document says a lot about the president's political priorities right now.


BARACK OBAMA, PRESIDENT OF THE UNITED STATES: We simply cannot continue to spend as if deficits don't have consequences, as if waste doesn't matter, as if the hard earned tax dollars of the American people can be treated like Monopoly money, as if we can ignore this challenge for another generation. We can't.


BLITZER: The president is trying to balance two competing goals -- boosting the economy and controlling the federal deficit. To improve the economy, the budget includes about $53 billion in tax cuts, including some for small businesses, and $50 billion in jobs creating measures. This budget raises the deficit in the short-term. But to ease the debt down the road, the president is proposing a three year spending freeze on a range of domestic programs other than national security and entitlements like Social Security and Medicare.

Our senior correspondent -- Congressional correspondent, Dana Bash, has been talking to lawmakers of the budget. She's standing by.

But let's go to our White House correspondent, Dan Lothian, first -- Dan, the president is proposing some cuts, but it's certainly not enough, by far, to bring down the deficit in the short-term.

DAN LOTHIAN, CNN WHITE HOUSE CORRESPONDENT: That's right. It really isn't, Wolf. And that's what you heard from the president today, acknowledging that much more needs to be done in order to impact the deficit and though -- so that's why he is pushing this bipartisan fiscal commission. This would be a panel made up of Republicans and Democrats to sit down and find, over the midterm and long-range, ways to further reduce the deficit.

Now, one -- one question that came up today at the briefing is why is this even necessary?

Shouldn't the president and Democrats, who are in the majority, be able to make these tough choices?

But Robert Gibbs saying today, Wolf, that it takes more than just one party to fix this problem.

BLITZER: Dan, the freeze he's proposing excludes the Pentagon, excludes the military. There are some budget cuts, though, in the Pentagon, right?

LOTHIAN: That's right. And one of the big ones, you know, the C-17 aircraft, which Congress had been funding even though the Department of Defense had, more than two years ago, said they no longer needed it; they had their order; they didn't need it. It kept being funded because, obviously, this was critical to jobs and so these constituents. So today, what the president is proposing is that cutting off funding for this C-17, saying it's not needed, they don't want it and this could save about $3.5 billion -- Wolf.

BLITZER: $3.5 billion. And it underscores, though, the problem that the president -- any president has. The president can make a proposed budget recommendation, but in the end, it's Congress that makes the final decisions. They can raise it, they can decrease it, they can do what they want.

Dan, thanks very much.

Let's go over to Dana Bash, our senior Congressional correspondent -- Dana, you're there in a room where Congress will hold it's first hearing on the president's new budget plan tomorrow, right?

DANA BASH, CNN SENIOR CONGRESSIONAL CORRESPONDENT: That's right. The president's budget director will be right in this chair, where he will be grilled by members of the committee sitting here. And you just were just talking about this with Dan Lothian. Congress -- lawmakers are very eager to remind the president -- even members of his own party -- that the White House may send a budget, but it is Congress that holds the power of the purse.

And in talking to lawmakers today, they made clear that this really is, in many ways, the president's political document with the president's priorities. And I spent some time walking the halls and talking to a couple lawmakers as they pored through it.


BASH: Hi, Congressman.

Thanks for letting us come in.

Appreciate it.


BASH: In general, Congressman, you have seen some of the reports. And certainly you were among many Democrats briefs by the White House about the spending freeze that they're planning on -- on doing.

What do you think of that?

PALLONE: Well, I think it's a good idea to have a spending freeze or spending cuts. You know, the question is the amount and where it's going to -- what it's going to include. I mean, for example, I would include the Pentagon. I wouldn't just have it be for certain domestic programs.

BASH: What are you looking for first to say, oh, I hope this is still in there?

I hope this is cut?

PALLONE: There may be some cuts in the Army Corps projects, which would be things like flood control and beach replenishment, which are very important to my district. And I -- I wouldn't -- I see those in the same way that I see road or mass transit projects, that those are infrastructure projects that are important and create jobs right away.

BASH: Now, of course, the Republican reaction is quite different. And we decided to come and talk to a Republican member of the House Budget Committee, John Campbell.

We're going to go in and talk to him as he goes through the budget with his staff. Hi, Congressman.


How are you, Dana?

BASH: Are you OK if we come on in?

CAMPBELL: Absolutely.

BASH: OK. We just wanted to...

CAMPBELL: Absolutely.

BASH: ...get a...


BASH: ...get a sense of what you're doing here.

CAMPBELL: Well, we're trying, at this point, to figure out -- you know, the broad numbers are here...

BASH: Right.

CAMPBELL: ...and the -- the overall numbers -- I mean here is the overall budget totals, for example. And then the other thing I always look at are the economic assumptions.

BASH: Now, big picture, what is your overall sense of what you've seen so far, better in terms of deficit reduction?

CAMPBELL: No. I mean, this -- this budget increases taxes, spending, debt and deficit basically almost every year going out. That -- that is unsustainable. I actually think people need to be panicking. People need to be alarmed. People need to be very scared about the spending and the debt.


BASH: Now that Republican Congressman I talked to, John Campbell, he admitted that his party, Republicans, they spent too much when they were in charge. But he said that he thinks the White House is multiplying it by five.

But, Wolf, the thing to keep in mind is that every member of the House is up for reelection this year. And Democrats, of course, are facing a very tough year. That is playing big time into the way the president's budget is being received here. And I talked to a Democratic source just a -- a short while ago who said, look, there are a lot of Democrats who think the president is on the right track in some ways; but in other ways, they think that he is not on the right track, especially in that whole area of not -- of a spending freeze on some domestic priorities.

BLITZER: So -- so basically what I hear you saying, Dana, is that some of these programs will live, some will die. The whole budget certainly is not dead on arrival.


BLITZER: But there are going to be some significant changes, especially during 2010, an -- an election year for so many members of Congress.

BASH: That's right. I mean there is no way that this will -- will end up being the law of the land, as the president proposed. And, of course, you talk to the White House, they say we never expect that. We understand the way the Constitution is written.

But, absolutely, the fact that the -- that the Democrats are facing a very rough road this year -- and you hear some Democrats from swing districts saying we need to cut -- cut spending and they're worried about the deficit. But you hear just as many Democrats who are more on the progressive side saying that they think, philosophically, the president is just wrong to even think about starting to -- to freeze spending because they think that the right way to help the economy is to spend the government's money.

BLITZER: All right, Dana.

Dana is going to be with us.

Thanks very much for that.

By the way, we're going to be speaking with Peter Orszag, the president's budget director. That's coming up this hour here in THE SITUATION ROOM.

We've got some tough questions for him.

There are new developments -- important developments on Toyota that we're going to share with you. They're just coming into THE SITUATION ROOM right now -- information you need to know if you own a Toyota, you're driving a Toyota or you have a loved one who may be driving one of these Toyota models. This is stuff you need to know. Stand by for that.

Also, some New York City officials wish the trial of 9/11 suspects would simply go away.

So why would the mayor of a nearby town welcome the trial in his backyard?

You're going to find out why and what his constituents have to say about this.

Lots happening today, right here in THE SITUATION ROOM.


BLITZER: Let's bring in Jack Cafferty.

He's got The Cafferty File -- PAGE: .

CAFFERTY: Wolf, it turns out some CIA operatives are doing double duty, working for private companies on the side. This is while our country is involved in two ongoing wars in the Middle East and continues to face threats to national security here at home. It's no wonder they didn't have time to connect the dots, is it, then, ahead of that botched Christmas Day bombing near Detroit?

Politico reports that, in some cases, the CIA moonlighting policy has allowed hedge funds and financial firms to hire active duty CIA officers to do something called deception detection -- teaching companies to figure out when executives are lying based on their behavior and what they say.

You don't need the CIA for that.

Defenders of the policy say it's a key way to prevent brain drain. In the past, there's been an exodus of highly trained intelligence officers to the private sector where, of course, they can make a lot more money. This way, they can earn more on the side and continue to work for the government.

One official insists the policy doesn't interfere with the CIA's work on critical national security investigations. The officers who want to moonlight must submit a detailed explanation of what they'll be doing and get permission from their bosses.

But there are a lot of unanswered questions here, including how many officers do this, how long has been it been going on, what types of other jobs are they allowed to take and what impact, if any, has it had on national security?

Government employees are generally allowed to moonlight in the private sector, as long as there's no conflict of interest and they get written approval.

So here's the question -- in light of recent intelligence failures, should CIA operatives be allowed to moonlight for private companies?

Go to and post a comment on my blog.

It's not hard to tell when executives are lying. If their mouth is moving, it's a pretty good bet.


BLITZER: I knew you were going to say that.

CAFFERTY: You don't need the CIA for that.

BLITZER: There's something about this program that doesn't feel right unless these CIA operatives are -- are looking to get a cover job so they can go out and pretend that they're working for somebody else.

CAFFERTY: To be a hedge fund guy and infiltrate who, Chavez?

BLITZER: I don't know.




BLITZER: Jack, thank you.

CAFFERTY: My pleasure. BLITZER: As the president unveils his $3.8 trillion budget, one of his top advisers on the economy says this about jobs.

Look and listen.


CHRISTINA ROMER, WHITE HOUSE ECONOMIC ADVISER: For the unemployment rate, the administration projects that we will end 2010 with an unemployment rate at approximately 9.8 percent. By the fourth quarter of 2011, it's projected to be 8.9 percent. And by the fourth quarter of 2012, 7.9 percent.


BLITZER: As you just saw and heard, the chairwoman of the president's Council of Economic Advisers, Christina Romans, says they expect the unemployment rate to steadily go down, be lower than 8 percent by the fourth quarter of 2012.

Let's bring in our senior political analyst, Gloria Borger, and David Gergen -- David, if -- if it's at this level, almost 10 percent, at the end of this year, when there are Congressional midterm elections, the Democrats, I suspect, will have some serious problems.

DAVID GERGEN, CNN SENIOR POLITICAL ANALYST, FORMER PRESIDENTIAL ADVISER: That's right, Wolf. You know, there's been a lot of talk in Washington about a jobless recovery. The last two recoveries from recessions haven't been very good about producing jobs.

But I think the grimness of the news really set in here today, with these predictions from the White House. Wolf, what this would mean if -- if Barack Obama ends his first term and the election cycle with the 7.9 percent unemployment, that would mean, with these predictions, he would have the worst record on unemployment of any president since World War II.

Moreover, there were two other presidents who started, as he did, with unemployment over 7 percent. But in both cases. It went down. President Reagan had over 7 percent when he started and it went down to 5.3 by the end of his first term. Bill Clinton had over 7 percent unemployment when he took office. It went down to 4 percent at the end of his first term.

With Barack Obama, this terrible recession that he has inherited, the unemployment rate at the end of his first term would actually be worse than when he took office.

BLITZER: Yes. And remember, they projections are not always precise. They projected a year ago the unemployment rate would increase up to 8 percent. It's gone above 10 percent.

GERGEN: Right.

BLITZER: So they're not exactly perfect...


BLITZER: ...these economists who make these projections.

But politically speaking, Gloria, if these are the numbers over the next three years of unemployment, it looks like there will be a jobless recovery.

BORGER: Right. And that's of -- of course, what they're worried about. One in 10 Americans now is looking for work and unable to find it. There are lots of people who are discouraged, not going back into the job market.

And to go back to Ronald Reagan, it's very interesting what happened with him. When he was inaugurated -- I went back and looked at these numbers today. Unemployment was at 7.5 percent. The 1982 midterm elections, it was up again, at 10.4 percent. That's kind of just a little bit higher than where we are now.

And my numbers show that the unemployment rate for his reelect was around 7.2 percent or something like that. Now, they're talking about higher for Barack Obama. But the -- the -- the thing that people at the White House will say to you, while they are glum, is that we have to show that these numbers are heading in the right direction, which is why, of course,. You're going to see another jobs package on Capitol Hill. It won't be as big as the House Democrats want, but there will be one.

BLITZER: And, you know, the pressure, David, on a president is enormous. On the one hand, the pressure to reduce the deficit, that's politically very, very powerful. On the other hand, increasing jobs, improving the economy, that's powerful. There are different things you've got to do for -- for both.

What is politically is more important, reducing the deficit or increasing jobs?

GERGEN: Well -- well, it's good to...



GERGEN: Well, yes. As you know, you've got to -- you've got to increase the jobs first. But then you've got to bring down the deficits. And -- and I think the president has got the order right. It's just this is so stubbornly high, so it's hard to find good news for the administration in here.

It's not just that their unemployment projections are higher now than they were a year ago, but their deficit projections -- they've got the next five years, as you well know, of -- of increasing deficits that are -- that five years of $5 trillion cumulative and it's a 35 percent increase over their projections only a year ago.

So if you look at all this, I think this is tough economics and it's very tough politics. BLITZER: Yes.

BORGER: It's completely unsustainable, Wolf. It's -- it's got to change.

BLITZER: All right, guys, don't go away. Lots more to digest. Remember, we're going to be speaking with the president's budget director, Peter Orszag. That's coming up.

Houston, we may have a problem -- while there will be more shuttle blastoffs, there may not be any more astronauts going to the moon. Wait until you hear what President Obama wants to do.


BLITZER: Lisa Sylvester is monitoring some of the other top stories in THE SITUATION ROOM right now -- Lisa, what's going on?

SYLVESTER: Hi there, Wolf.

Well, the father of a man charged in an alleged New York bomb plot has been accused with conspiring to obstruct justice. Mohammed Zazi was charged today with helping to destroy chemicals and other materials linked to the investigation. His son, an Afghan native, has pleaded not guilty to a charge of conspiring to use weapons of mass destruction in the United States.

Mexican police say 16 teenagers were shot to death in a massacre at a party in the violent border city of Juarez. Gunmen burst into the party, opening fire on the young people, who were watching sports on TV at the time. Police think they were mistakenly targeted. The mayor is calling them good people. At least 160 people have been killed in drug gang violence there this year.

General Motors' plans to sell Hummer to a Chinese machinery maker is being delayed a month. G.M. says they're extending the deadline to complete the transaction until February 28th, pending final approval by the Chinese government. The once hot sport utility vehicle, it sold very well until the mid-2000s, when fuel prices began to rise.

And ads for Sunday's Super Bowl -- they are sold out -- a remarkable feat given the state of the economy right now and given that these 30 second spots cost up to $3 million. CBS, the broadcaster for the big game, says it's been 95 percent sold out since early January. Last year was a record for viewers, with almost 99 million people tuning in. And Anheuser-Busch is the top advertiser this year.

And I'm sure, Wolf, you'll probably be tuning in and watching, won't you?

BLITZER: Like everybody else in the world, I assume -- or at least in the United States and North America.

Thanks very much, Lisa.

Don't go away.

Let's get to the question that's weighing in on the minds of millions of Toyota owners and their friends and family, relatives right now -- when and how can I make my car safe to drive?

Toyota executives are coming forward with a new -- with new details today, as the company reels from its massive recall.

CNN's Deborah Feyerick is following the story for us -- Deb, Toyota says it's now figured out a way to fix this problem.

DEBORAH FEYERICK, CNN CORRESPONDENT: Right. And the way they're going to go about it, Wolf, is just fixing it one car at a time. Toyota engineers out of Japan have been running durability tests in order to make sure that this repair is a good one and that it lasts.

And here's what they came up with.

First of all, if you take a look, this is the accelerate pedal -- the gas pedal. The problem is in that area, that squared off area.

What's happening is that the cars that are being recalled are at risk of experiencing excess friction in that part of the assembly which controls the feel of the pedal. Now, over time, weather conditions and wear and tear cause areas to stick.

And you can see over here, a more -- a more focused area. And, again, this is the gas pedal, so that's the area just down by your foot. The pedal does not return, as it's supposed to. So the car does no slow down, but continues, instead, to accelerate. And that's what's causing driving problems.

Now, the solution -- if we look over here -- and you can see that little pink bar just there, that is a reinforcement bar designed to reduce surface tension and allow the two areas to operate as they're supposed to, with much less friction. Now, it takes about 30 minutes to install. But, really, when you think about it, it still adds up to over a million hours of manpower to fix this problem across 170,000 dealerships nationwide. So even if dealers stay open around the clock, it's still going to take a lot of time, especially since you have to get that little slip in the mail saying book an appointment -- Wolf.

BLITZER: Yes. And, Deb, you know, that Toyota says they've been transparent. But this is really the first time they've been speaking out on this.

FEYERICK: And that's really what's so interesting. You know, especially in this business, an apology and an explanation really go a long way, especially when a number of Toyota drivers are afraid to drive their cars.

But early this morning, about 6:30 Eastern Standard Time, chief operating officer, Jim Lentz, appeared in a Toyota video on YouTube apologizing for the recall, before stopping here at "AMERICAN MORNING". (BEGIN VIDEO CLIP)

JIM LENTZ, PRESIDENT & CHIEF OPERATING OFFICER, TOYOTA: We are truly sorry for letting them down, that nothing is more important to us than their safety and their satisfaction and that we're redoubling our efforts to make sure that this can never happen again.


BLITZER: And, you know, there's also a third possibility, Deb. The suggestion it's not necessarily the floor mat, not even the pedal, but an electrical problem. And we're now being told that NHTSA is investigating that possibility, that this is a much bigger problem for Toyota than they're letting on.

FEYERICK: And that's what's really interesting, because we have spoken to a number of lawyers -- a couple of people who are planning on class action lawsuits. And they say speaking to people, what they're describing does not sync up with what Toyota is claiming.

But the chief operating officer and a design official said that, no, this is not an electronics issue, that there's no interference between the various car components -- sort of like the reason you turn off your cell phone off in an airplane, so as not to interfere with the signal there. Well, Toyota says there are many redundancies and safety nets in place to prevent the electronics system from failing. Toyota officials are planning to visit dealerships to gauge how customers are reacting. Lentz, the chief operating officer, saying they're simply trying to keep up with demand and that may have led to these quality control problems -- Wolf.

BLITZER: And NHTSA is the National Highway Traffic Safety Administration.


BLITZER: It's part of the Department of Transportation.

Once again, they're looking into this possibility that this could be a much bigger problem for Toyota, an electrical problem that they haven't yet addressed.

We're watching this.

This is a huge story.

Much more coming up here in THE SITUATION ROOM.

The Education secretary says Hurricane Katrina may -- Katrina may be the best thing that ever happened to New Orleans' schools.

An outrageous remark?

A realistic one?

What's going on? The New Orleans resident, James Carville, and the former Education secretary, Bill Bennett -- they're ready to face-off on that question and a lot more. That's coming up in our Strategy Session.


BLITZER: To our viewers, you're in THE SITUATION ROOM.

Happening now, new developments regarding a man accused of trying to blow up an airplane near Detroit on Christmas. Wait until you hear what we're hearing about the decision to read the suspect's Miranda rights. Stand by. We have new information.

Also, what were 10 American missionaries doing with 33 Haitian children trying to get out of the Haiti?

They say they were only trying to help these orphans.

Haiti officials say this is a case of kidnapping, these were not orphans.

And you might say, Houston, we have a problem. President Obama would kill a $100 billion NASA plan to send astronauts back to the moon.

I'm Wolf Blitzer.


Depending on whom you ask, it will be a trial that will further show the world the United States operates on a civilized system of law and justice or it will plunge New York City into a prolonged state of chaos, inconvenience, fear and remind residents of an unimaginable hell. Those are the serious considerations hanging over the Obama administration right now, as it decides whether to hold the 911 terrorist attack trial in New York City or not. Let's get the latest from CNN's Mary Snow. She's been looking into this story for us. It's causing a big stir here in New York.

MARY SNOW, CNN CORRESPONDENT: It certainly is, Wolf. A lot of opposition but New York City is not being ruled out as the site of the trial for alleged 9/11 mastermind Khalid Shaikh Mohammed and four accomplices. A justice department official say today that New York City is not off the table, but said other locations are being evaluated. This after administration officials said over the weekend that the administration and justice department were considering moving the trial from New York. It came after concerns raised last week by politicians, including New York's mayor about the costs of disruption to the city. The mayor had initially supported the idea of holding the trial here. While there's no official word a plan b, the mayor of Newburgh, New York, is hoping his town will be considered. Newburgh is about 60 miles north of the city. Mayor Nick Valentine says the city has a new courthouse and that funding for security and all the attention it would bring it would help what he calls his very poor, very urban city, but opinions in the town are mixed.


JOSEPH HALL, NEWBURGH, NY RESIDENT: Take a look. Take a look. A low of poverty here, a lot of unemployment here, a lot of poor housing, so I'm sure if it's used the right way, it could be an asset to the community.

CHRISTINE BELLOW, NEWBURGH, NY CITY COUNCILWOMAN: We as the council members are directed by the people. I've had my phone ringing off the hook since this came out. People are like outraged. They don't want this here.


SNOW: The mayor's office in Newburgh says so far nobody has been in contact about that offer. WestPoint has also been talked about as an alternative site but a spokesperson says no one has been officially asked to participate.

BLITZER: The location is not the only controversy.

SNOW: The fact of thinks civilian trials is also a controversy. Republican lawmakers are stepping up their criticism of holding civilian trials for high-profile terror suspects. They want them to be tried by military commissions. A group lead by Republican Senator Lindsey Graham plans to introduce a bill to cut off funding for the trial for the accused conspirators in New York, it's estimated the security costs would be about $200 million, but a Democrat has added her name to the list, Blanche Lincoln of Arkansas, who will also support this bill.

BLITZER: Thank you very much, Mary Snow, working the story for us. Appreciate it, lots of controversy here in New York.

Let's get back to the top story. The president unveils his budget proposals. Let's talk to the budget director, Peter Orszag. He's joining us from Washington. Thanks very much for coming in.


BLITZER: Let's talk about Medicare for a moment. In the Senate version of the health care bill, there's a proposal to cut over the next ten years about 500 billion in Medicare. Is that right?

ORSZAG: That's about right, yes, sir.

BLITZER: Isn't this budget today, do you include that cut?

ORSZAG: What we do is take the average of the house and Senate bills and include that as a placeholder in this budget.

BLITZER: How much does that come to?

ORSZAG: It averages deficit reduction a little north of $100 billion. There's been some discussion of this, so let me point out we have more than $1.2 trillion in deficit reduction included in the budget. Even if you exclude the health reform legislation, we're still over a trillion in deficit reduction.

BLITZER: You're talking now about Medicare in this budget saying it will cut about $100 billion in Medicare over the next ten years?

ORSZAG: The net impact of the health reform legislation is to reduce the deficit by more than $100 billion.

BLITZER: Is that Medicare or other stuff?

ORSZAG: That includes all in, the legislation as a whole.

BLITZER: The question is, I guess; if you think that it is a reasonable proposal to cut $500 billion in Medicare costs projected over the next ten years, why wait to get a new health care bill? Why not just do it now and start reducing the deficit?

ORSZAG: Oh, because this is part of an overall package that balances various considerations. Remember where those savings are coming from. They're coming from, for example, reducing overpayments to Medicare advantage plans, part of a coherence whole where you're not only getting the Medicare savings, but also doing other things to help put the nation on a more sustainable fiscal course while sustaining recovery in a fiscally responsible way.

BLITZER: Let's talk about the proposal to free domestic spending. Let's talk about the president's proposal. That would take effect not in this proposed budget? Is that what you're saying?

ORSZAG: Well, actually there's been some confuse about this, too. So the 2010 appropriations bills have already been enacted. That's all done. The Congress will start turning to fiscal year 2011 budget which starts at the beginning of October of this year. That's when we freeze nonsecurity discretionary spending.

BLITZER: So you're not goods to freeze anything until October 1st, 2011 budget.

ORSZAG: Which goes into effect 2010, that's correct.

BLITZER: Nancy Pelosi says why stop with the defense department?

ORSZAG: We need to make sure we're protecting our troops and fully funding them, but we are looking for savings in defense budget. We're, for example, proposing to cancel additional purchases of the C- 17 cargo plane. We're proposing to eliminate any additional spending on the alternative engine for the F-35. We're proposing to terminate the CGX ship that the navy thinks is not necessary. So there are a variety of terminations and reductions that are in the Pentagon budget. Secretary Gates is looking for efficiencies while also protecting our troops in the middle a war.

BLITZER: If you eliminate the big-ticket items you could still have a huge budget to freeze at the current level and still have growth in the areas which you feel are productive to national security. ORSZAG: Well, let's look at the defense budget. Roughly a third is personnel. Again, while we're at war, we're going to make sure we're protecting our troops. Roughly a third is operation and maintenance. Again, especially during wartime, we need to make sure that those activities are adequately funded. Then the final third is procurement in R&D. There we are looking for efficiencies and savings. It takes time, but we have had success here. If you go back a year, we put forward termination of the F-22 fighter jet. No one thought we would succeed, yet we did. We proposed eliminating the terminating helicopter. Secretary Gates has led here in terms of reforming the procurement part.

BLITZER: Is it fair to say this budget the president introduced today, and you're the point man on the budget, is it fair to say that the annual budget deficits will remain huge as far as the eye can see?

ORSZAG: What is true is that we had a preexisting condition of very large deficits, as far as the eye can see, and this budget brings them down by more than a trillion.

BLITZER: But it does -- for ten years, 20 years, 30 years down the road, you're still projecting deficits?

ORSZAG: Deficits -- despite the deficit reduction contained in this budget, the deficits remain large. That's one of the reasons why a fiscal commission can help move us the rest of the way there.

BLITZER: Peter Orszag has got a tough job. Thanks very much for coming in.

ORSZAG: Thanks for having me.

BLITZER: Good luck. The country needs obviously a lot of help right now economically speaking.

Toyota says it's found a fix for those sticky gas pedals, and its recall nightmare. We're heading to a repair center to find out what millions of Toyota owners affected by the recall can expect when they get their cars repaired. Stand by.


BLITZER: Lisa Sylvester is monitoring some of the other top stories in THE SITUATION ROOM right now.

Lisa, what's going on?

LISA SYLVESTER, CNN CORRESPONDENT: Hi there Wolf. In March President Obama plans to visit Indonesia, Australia and Guam. The president spent several years in Indonesia as a child. The white house says he'll formally launch a comprehensive partnership with Indonesia during that trip. He will also mark the 70th anniversary of Australia/U.S. relations and discuss Afghanistan and nuclear non- proliferations with Australian leaders.

Well, the American Red Cross is coming under scrutiny as donations pour in to help Haiti. Its CEO says of every dollar given 91 cents goes to aid. She says of $198 million raised for Haiti, the nonprofit has spent or committed $53 million on food, $12 million for shelter, and $2 million for health and family services. The charity has a debt of $613 million. It was a few years ago that the Red Cross got $100 million bailout from Congress.

It's been 50 years since the Woolworth sit-in. That was a turning point in the civil rights movement. Marking the anniversary, a museum opened today at that site of the Woolworth's in Greensboro, North Carolina. The four stools are still there. In 1960, four African American students took a stand by sitting at the white only lunch counter at the store. That let to sit-ins across the south that sparked a wave of civil rights protests. Wolf?

BLITZER: Thanks for that, historic moment indeed, a lot of people remember that event.

Don't ask/don't tell/don't end, is the military ready to do what President Obama wants it to do? Our political strategists getting ready to weigh in.


BLITZER: Let's bring in our CNN political contributors, James Carville, the Democratic strategist, the national radio talk show host, Bill Bennett. Let me read what Arne Duncan, the education secretary, said to Roland Martin over the weekend. He said this. He said, "This is a tough thing to say but let me be really honest. I think the best thing that happened to the education system in New Orleans was Hurricane Katrina. That education system was a disaster and it took Hurricane Katrina to wake up the community to say that we have to do better." Duncan later called the mayor to explain. I'm not sure what his explanation was. Do you understand the point he was trying to make? James Carville, you live in New Orleans.

JAMES CARVILLE, DEMOCRATIC STRATEGIST: First of all, he's a terrific education secretary and terrific friend of New Orleans and the school children in New Orleans. Slightly a little bit off. The effort to do the school changes was taking place prior to Katrina. There's no doubt that when Katrina came it accelerated it but if I were him I would have said it slightly different but I find some bigger issue in Washington than it is down here. There's not a lot of people talking about it and I think people generally regard him as a good education secretary and somebody who understands what's going on down here in the school system.

BLITZER: Bill Bennett was once an education secretary. What do you think Bill?

BILL BENNETT, NATIONAL RADIO TALK SHOW HOST: I never said anything controversial though, Wolf. You'll recall that.

BLITZER: I don't remember that, but go ahead.

BENNETT: I have to say this. If George Bush's education secretary or Ronald Reagan's had said something like this, there would be calls for resignation. Heads would be rolled. People would insist. But I wouldn't call for it. I think Duncan is a very good man. In fact there are three good men operating here, Duncan, Paul Pastorak, whom I'm sure James knows and the superintendent, Paul Ballice. Look, I understand what he's talking about. They've started new down there. The charter schools and other programs they have put in place are working, so I'm not going to criticize Arne Duncan, which I think is the best appointment that President Obama has made. He's pushing in the right direction. People in New Orleans aren't offended. Gotcha Washington can get over it.

BLITZER: I think we're going to speak to Arne Duncan tomorrow. This is one area, education, where I think there can be some bipartisanship going forward. Let me move on to a huge story that will be developing tomorrow, the don't ask/don't tell policy that the pentagon has enacted since 1983, the first year of the Clinton administration, gays not allowed to serve openly in the United States military. The president says he wants that to change this year. There will be hearings on the hill tomorrow. Will it happen, James?

CARVILLE: I suspect it's an idea whose time is come. The president ran on it, by the way. It wasn't like a big secret that this was something that he wanted to do. He's fulfilling a promise he made in campaign. I can't tell you if it will happen this year or next, but this year is on its way to happen, and it's fine. It will be a good thing for the military.

BLITZER: Yesterday, John Boehner, the Republican leader in the house, Bill, suggested it's not a good time right now in the middle of two wars to raise this contentious issue, leave it for another day. What do you think?

BENNETT: I think the timing is not good. There are prior questions; I think they need to figure out how to handle terrorists first who seek to harm our country before they figure out what to do with U.S. citizens who are gay who want to serve. I think you have to give a lot of deference to the military. I don't think the military wants this. If you poll the American people, polls are all over the map. Military leaders are not. I think there are prior questions. I would agree with James, if they -- it won't happen fast, nothing like this will happen fast.

BLITZER: But Bill let me interrupt you for a moment. Since '93, 13,000 men and women have been removed from the United States military because they were gay, many of whom had linguistic skills, Arabic translators for example. They had unique skills that U.S. taxpayers spent a lot of money working on to develop. Isn't that a waste of talent?

BENNETT: It is a waste of talent. It has to be weighed against other considerations, but I take the considerations that the military have raised seriously, and I would I would want to listen to them. You do not want to demoralize your military, particularly when there are other prior questions this administration needs to focus on.

CARVILLE: If I could make a point here, the secretary of defense is supporting this. BENNETT: Sure, he is.

CARVILLE: And I'm always people say well, it wasn't the time. It wasn't time to invade Iraq after 9/11.

BENNETT: Well, it was.

CARVILLE: And this is not going to have nothing to do with 9/11, but at any rate, this won't be as big a distraction as the Iraq war, I promise the American people that.

BENNETT: It's a very good thing.

CARVILLE: He ran on that.

BENNETT: The Iraq war irrelevant to this discussion, you brought it in, no, I didn't. It's a very good thing to do.

CARVILLE: It's a big distraction from the war on terrorism.

BLITZER: Let me give you an argument Bill that's been made often. Harry Truman when he integrated the U.S. armed forces after World War II, he signed an executive order and it made it happen, there was a lot of uproar, you remember in the late '40s and early '50s, people weren't happy about that. He did it, it became existing policy. And today the U.S. military is among the best as far as race relations is concerned.

BENNETT: U.S. military led the way and a lot of U.S. military leaders will tell you distinctions based on race have no place in the military. But in closed quarters, gender preference can make a difference, does make a difference, and I do not think the people who hold that are bigots. I think they are realistic giving us their best counsel. I would listen to them. I would give them great deference. He wants this issue, he can have it, he promised it, he ran on it, if he wants to follow through on it, fine. I don't think it's a very good issue given what's going on in the world. Having nothing to do with the war in Iraq, by the way.

BLITZER: All right. You know what?

CARVILLE: You're the one that brought up distraction, the war on Iraq was a distraction from the war on terrorism. That's a fact. Iraq had nothing to do with 9/11 --

BLITZER: We'll argue that another time.


BLITZER: Guys, we'll continue the discussions tomorrow. Lots to talk about. Thanks very much.

Democrats still are reeling from losing Ted Kennedy's long time Senate seat in Massachusetts. But here's a question, could President Obama's former Senate seat in Illinois be next? The anticipation and anxiety before primary day in Illinois tomorrow. (COMMERCIAL BREAK)

BLITZER: Bring in Jack for the Jack Cafferty file.

JACK CAFFERTY, CNN CORRESPONDENT: There you go. Question this hour, in light of recent national intelligence failures, should CIA operatives be allowed to moonlight for private companies?

Edward writes, "Let me get this straight. You say there are people in this country that can find two jobs? Many Americans would be happy to find just one."

Mike in New Orleans, "I'm a federal employee in a non-sensitive position, I'm not allowed to moonlight. These moonlighting CIA operatives are also selling the skills they acquired from the government's investment in their training. If the CIA job isn't good enough, I hear Wal-Mart's hiring."

Michael writes, "Jack, I don't have a problem with them working in advisory positions, but when our security suffers, then the moonlighting policy needs review."

Joey writes from Florida, "First they seem to be having much trouble doing their government jobs so, no. Next there is a danger of conflict of interest so, again, no. Generally I would have to say no, absolutely not, no way, no how, by no means under no circumstances, no way. I hope I made myself clear."

Ken in Maryland wrote, "By moonlighting you mean a job after their normal work hours, I don't see how preventing it would have helped with intelligence issues. They still put in their eight hours. Non-moonlighting won't help that any. As long as there's no conflict of interest, I don't see a problem."

F. in Manchester, New Hampshire, "This makes the CIA even creepier than before. It's bad enough that corporations are allowed to buy members of Congress, totally wrong they're buying out the spy network too."

B. writes, "No, Jack, CIA should do one job only, that's CIAing."

And David writes from Las Vegas, "If I tell you, I'll have to kill you."

If you want to read more about this, you can go to my blog at

BLITZER: They were having some fun. Jack, don't go away.

President Obama wants to stop shooting for the moon, at least for now. How his new budget plan would cut into NASA's plan.


BLITZER: An important primary vote for the president his party tomorrow in the Senate seat Mr. Obama once held is now up for grabs. And after the loss of Ted Kennedy's long time Senate seat in Massachusetts, the last thing Democrats want is to lose another one. Let's bring in our senior political correspondent Candy Crowley who has been named the new anchor of CNN's new Sunday show "STATE OF THE UNION."

Congratulations, Candy for that. Good work. Could Illinois, here's the bottom line question, become another Massachusetts for the Democrats?

CANDY CROWLEY, CNN SENIOR POLITICAL CORRESPONDENT: Certainly Massachusetts going Republican for the first time in more than three decades for that Senate seat of Ted Kennedy's has opened the range of possibilities. And certainly in Illinois, there is that possibility. If things go as the polls are now pointing, a five-term Republican Congressman will get the Republican nod to run for the U.S. Senate seat that President Obama held. The Democratic nod will go to the Illinois state treasurer. There has been some dust kicked up about his family's banking business in recent weeks, but Democrats think he still will probably squeak this through.

What do you have? One Democrat told me a competitive race. Now, think about this for just a moment. By Democrats' own yardstick, they say this is the seventh most Democratic state in the nation, Illinois. It is President Obama's former Senate seat, and they're looking at a competitive race. In the middle of the summer, you will see what? The trial of Rod Blagojevich, the former governor of Illinois, a Democrat on trial for corruption for trying to allegedly trying to sell that Senate seat. Republicans do see a shot here. Democrats believe that they can run on the idea of the five-term Republican Congressman is the insider. He's the incumbent, we're the outsider. So that's how the race would shape up post primary day, which is tomorrow.

BLITZER: I assume the president's very popular in Illinois still. He'd spent a lot of time campaigning for the Democrats.

CROWLEY: Sure, but he was very popular in Massachusetts and New Jersey and Virginia. And as you know full well, he lost the races there.