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Interview With Jacob Lew; Interview With Sen. Graham; Interview With Rudy Giuliani

Aired July 17, 2011 - 09:00   ET


CANDY CROWLEY, HOST: A week of a lot of heat inside a lot of meetings which produced no debt deal.


CROWLEY (voice-over): Today, dodging default with White House Budget Director Jacob Lew and Republican Senator Lindsay Graham. Then, Rudy Giuliani on the president, the Republican field and gay marriage.

RUDY GIULIANI, FORMER NYC MAYOR: And I don't know what the heck the Republican Party wants to do getting involved in people's sexual lives and personal lives so much for. Stay out of it.

CROWLEY: And the politics of red ink with former Biden Chief of Staff Ron Klain and former Republican Congressman Tom Davis. I'm Candy Crowley and this is "State of the Union."


CROWLEY: The president said he wanted a deal by Friday, so lawmakers met with him at the White House day after day after day. They took a break Friday, and the president pushed again.


BARACK OBAMA, PRESIDENT OF THE UNITED STATES: If Washington operates as usual, and can't get anything done, let's at least avert Armageddon.


CROWLEY: Joining me now, White House Budget Director Jacob Lew. Thanks for being here this morning.


CROWLEY: We are told by Hill sources that since the last White House meeting on Thursday and this morning, there has been no progress. Do you concur?

LEW: I think quite a bit has been going on since the meeting at the White House on Thursday night.

CROWLEY: There has been activity, but has there been progress?

LEW: Well, there has been activity and progress I think on two fronts. First, there are substantial discussions going on in the Senate between the two leaders to make sure that at a minimum, Congress has a way to take action and avoid default on the U.S. debt. It's critical. We don't think it's enough. We think that the president said clearly we should do as much as we can to reduce the deficit, but we have to avoid the kind of chaos that would result from default.

CROWLEY: So you're talking about the McConnell-Reid--

LEW: Correct.

CROWLEY: -- way out of not having a -- it cuts 2.5 -- 1.5 actually -- and then there's--

LEW: My understanding is what they are working on right now would simply provide a mechanism for extending the debt and provide for a committee, a joint committee of the Congress, to take action on the deficit.

The president has been clear that we need to do more than that. We need to get as much done to reduce the deficit now, and the time to act is now. I think in addition to that, there have been a lot of conversations going on amongst parties. The president at the end of the meeting on Thursday said that each leader should go back to their caucus, they should talk to each other, they should be back and forth with the administration, and that has been going on since Thursday.

CROWLEY: So you have been talking to folks as well about the grand deal and the medium deal and the small deal?

LEW: There have been a lot of conversations going on, and they will continue to.

CROWLEY: Again, conversations aren't exactly progress. So where do you think you have made progress?

LEW: You know, I think it's not insignificant that all the leaders understand that it would be irresponsible to get to August 2nd and not extend the ability of the United States to pay its obligations.

CROWLEY: Do enough members of Congress understand that?

LEW: I think that as we approach it, more and more seem to be coming to it. There will be a fringe that believes that playing with Armageddon is a good idea, but I don't think that's where the majority will be.

CROWLEY: Any White House meetings today with any of the principals?

LEW: You know, I have not been to the office yet this morning. I think I will find out when I get there. CROWLEY: When you get there, OK. So you seem fairly confident that at the very least there will not be default on the 2nd?

LEW: I have confidence that ultimately the responsible leadership in Washington will not fail to take an action where failure would mean interest rates that would amount to a tax on all Americans when they buy a home or a car, it would undermine our recovery, that would create chaos in the U.S. and world economy. I am confident that the responsible leaders of Congress know that that is not an option.

CROWLEY: More immediately, you would have to make some spending priorities, payment priority decisions. Social Security benefits, federal worker pay, defense contractors. What are your priorities should you not have the debt ceiling raised on the 2nd, when you have these bills that sort of immediately become due? Social Security checks, federal worker pay, defense contractors?

LEW: Our plan is for the Congress to do its work and for the president to sign into law legislation that will make it possible for the United States, as it always has, to keep the obligations. We will be ready to deal with whatever happens, but there is no plan other than meeting our obligations.

CROWLEY: Surely you must have discussed priorities, though, we have to pay this?

LEW: Well, the truth is that -- that this is a different situation than the United States has ever faced. We have never gone into a situation where we didn't have enough money to pay our bills. We borrow 40 cents on a dollar right now. If the time comes when we lose the ability to pay our bills, there will be a cash flow issue that is very real, and that's why it's critical that Congress take action before August 2nd.

CROWLEY: Would you actually allow it to happen, that those Social Security checks would not go out? Will you allow that to happen?

LEW: I think as the president has indicated, it's not a question of what we allow and what we don't allow.

CROWLEY: But you get to decide priorities. There will be some money --

LEW: There won't be enough money to pay all the bills.

CROWLEY: Of course not, that's why I'm talking about priorities.

LEW: I think that once one gets into the business of trying to ask about setting priorities, it misses the fundamental question, which is that it's unacceptable for the United States to be in a place where -- whether it's a Social Security recipient or a soldier or somebody who is just owed money by the government can't be paid because we have not done our job.

CROWLEY: Let me play something interesting, talking about everything on the table. One of the things, as you know, that some Republicans are pushing is a balanced budget amendment, a constitutional amendment to require a balanced budget under certain circumstances. Here is what the president had to say the other day.


OBAMA: I think it's important for everybody to understand that all of us believe that we need to get to a point where eventually we can balance the budget. We don't need a constitutional amendment to do that.


CROWLEY: But apparently you do need something to do that, because we're facing a meltdown, you all keep saying, and yet there isn't a deal, and yet we don't have a deal that will raise the debt and forego a meltdown. What is so wrong with a balanced budget amendment?

LEW: Just to be clear, and as the president has said a number of times this week, if not now, when? Congress needs to act. It is a question of will. There is plenty of time to make decisions now.

CROWLEY: But to this constitutional balanced budget amendment?

LEW: What these -- these ideas do is say let's kick the can down the road so that others will deal with it. The challenge is for Washington now to do the job the American people sent us here to do.

The form that this constitutional amendment takes is actually quite draconian. What these amendments do is not just say you have to balance the budget, but it puts in place spending limitations that would force us to cut Social Security and Medicare more deeply than even the House budget resolution did.

CROWLEY: What about the--

LEW: That's not what the American people want.

CROWLEY: -- principle of the balanced budget amendment?

LEW: You know, I think the principle that really should be governing right now is that Congress do the job that it was sent here to do. The president wants to work with Congress. He has shown a willingness to move substantially. We need a partner to work with. We need to get the job done. We need to get the job done now, and we need to as much as we can do, because the whole world is watching. This is not just a question of Washington politics. The U.S. credit rating is at stake. Our place in the world is at stake. We need to act now.

CROWLEY: Let me ask you something about -- what the debt most needs is a growing economy, and in that nature, I want to read you something, and our source here is Reuters. This is from a Goldman Sachs report that went out last night in which Goldman Sachs said, "Following another week of weak economic data, we have cut our estimates for real GDP growth in the second and third quarter of 2011 to 1.5 percent growth in the third quarter, 2.5 percent in the fourth quarter. We now expect the unemployment rate to come down only modestly to 8 3/4 percent at the end of 2012."

This is higher unemployment and lower growth than you all were predicting. What that means, of course, is that you can't make a substantial effort towards the debt, as opposed to the deficit, with growth that low, can you?

LEW: Look, it has been a difficult few weeks in the economy. There have been some external factors from the nuclear accident in Japan to other things that made the growth slower. And there's still a consensus that we will return to growth, but it's not enough growth, and the president has made clear we need to stay focused on growing the economy and creating jobs. CROWLEY: Do you agree that growth is going to be lower than you all thought?

LEW: I think that it's clear that recent weeks have been slower than have been expected. We are still confident, as are most forecasters, that we will return to growth, and that we will remain a growing economy. But the challenge is--

CROWLEY: But more (ph) than you had hoped, though, you think, now looking at it?

LEW: There are a lot of things that we can do now that would make a difference. We have done quite a lot in the first two years, with the recovery act. The president and Congress took action, that without which we would have millions more people out of work. We have pending proposals on the Hill which would do a lot to grow the economy and create jobs. Congress should pass the trade agreements that are up there. It should pass patent reform. The president has made clear that we need to take a look at extending the payroll tax deduction. The average American family has $1,000 in their pocket. There are things we can do and we need to work together to get them done.

CROWLEY: Thank you so much, Jacob Lew.

LEW: Pleasure to be with you.

CROWLEY: Director of Office of Management and Budget. We appreciate your time. Go to the White House and let us know what is going on. We appreciate it.

LEW: Thanks, Candy.

CROWLEY: Up next, we will talk to one Republican who says his party should consider negotiating with Democrats over tax increases or closing loopholes. Senator Lindsey Graham right after the break.


CROWLEY: Joining me now from Clemson, South Carolina, Republican Senator Lindsey Graham.

Senator, thanks for joining us. I think you just heard the director of the Office of Management and Budget saying that he believes that more and more Republicans are beginning to understand that default, while an option, is a calamitous option, and certainly an onerous option. Do you see any kind of coming together of Republicans around a way that will avoid default?

SEN. LINDSEY GRAHAM (R), SOUTH CAROLINA: Absolutely. I think the House will pass next week "cut, cap, and balance." It does three things. It will take the government spending in the near term back to around 2008 spending levels. It will have a cap on spending over the next decade to make sure we wipe out the debts in a 10-year period. And will require the passage of a balanced budget amendment out of Congress.

And for those three things, will raise the debt limit. That will be the Republican position in the House almost unanimously. I think it will be the Republican position in the Senate. And I would urge every Democrat to...

CROWLEY: But you can't pass it in the Senate.

GRAHAM: ... get in the room and help us craft a balanced -- well...

CROWLEY: You can't pass that in the Senate, can you?

GRAHAM: ... why can't we? They will never be a balanced -- I think so. There will never -- well, let me just say this. What is calamitous is the track we're on as a nation. We're becoming Greece. We are borrowing 40 cents of every dollar. We have $51 trillion of unfunded liability.

A child born today has $46,000 of debt. So now is the time to do real things that will matter. Forty-nine states have a requirement to balance their budget. I am convinced after being here since 1995, Candy, that neither party is going to balance the budget unless there is some discipline in the system, and the system that will bring discipline is a balanced budget amendment in the Constitution, which I think would be ratified in a couple of years.

CROWLEY: But I must say, Jacob Lew just told us that the conditions on this balanced budget amendment would require huge cuts in Medicare and in Social Security. They have a majority -- the Democrats have a majority in the Senate.

This does not at this moment in its current form sound to me like something that will pass in the Senate. Then what?

GRAHAM: Well, we will negotiate -- the number of GDP spending is 18 percent, the balanced budget amendment in the House is going to limit spending of 18 percent of the GDP, which is the 40-year average.

But that is subject to being negotiated with Republicans and Democrats. The super majority to raise taxes is subject to being negotiated. I don't think what is subject to being negotiated is the idea of avoiding a balanced budget amendment. When the president said we don't need one, Candy, what rational person can look at the Congress over the last 40 years, Graham-Rudman- Hollings, Simpson-Bowles, there is no plan going to achieve balance in Congress unless the Constitution is changed to make us do it.

So I am very...

CROWLEY: What happens if there is a big...

GRAHAM: ... willing to raise the debt limit...

CROWLEY: ... expensive war? What happens if you have a -- let's just say somehow that there is a balanced budget amendment and it passes...

GRAHAM: You can adjust it.

CROWLEY: ... and huge things happen. Katrina happens. Tornadoes run through all of the Midwest, and then we start a war, and you have got a balanced budget amendment. What happens?

GRAHAM: You can waive the provisions by two-thirds vote of the Senate. So if there is a major war, we get attacked, another 9/11, we have a very cataclysmic event that affects our economy, either internally or externally, we can waive that requirement.

Forty-nine states have this requirement. Candy, I don't see how anybody who has been in politics as long as I have can look the people in the eye and say that within the body we are going to find a way to do this.

Every two years, we jockey for the next election. We never make long, hard term (sic) decisions. The big deal they're talking about, of cutting spending over the next 10 years, still adds $6 trillion to the debt.

So the real deal to limit spending and get us in balance would be to an amendment to our Constitution. Without that we're just going to talk to each other and run America into the ground.

CROWLEY: Let me ask you about the so-called McConnell-Reid plan, which is not, as I understand it, completely put together yet, but it would allow the president to raise the debt ceiling in three increments between now and the end of next year, perhaps with some spending cuts attached.

As a last resort, would you vote for that in order to avoid default?

GRAHAM: No. I am sticking with the balanced -- I don't have any confidence that anything Republican or Democratic leaders is going to lead to the solutions that we need. It never has in the past. I am looking for a win-win.

I am looking for a way to raise the debt ceiling, and we need to, but we need to address fundamentally what got us into debt. Cut, cap, and balance gets us out of debt over a long period of time. And it will have a balanced budget amendment requirement to stay out of debt.

I think that's going to be the Republican position. To me it's a very sound position. In all of these commissions...

CROWLEY: It's a position, but is it a solution?

GRAHAM: ... that people propose...

CROWLEY: I mean, I think, you know, we certainly heard the White House...

GRAHAM: I think so. It's the only solution.

CROWLEY: Well, it just doesn't -- honestly, it has been out there for a while. We have heard of the cut, cap, and balance. It has not caught steam on the Democratic side. You all are staring down the face of this default, and you say, well, this is our position, as the White House says, here's our position.

Where is the give? You had, at one point, said you might go for some revenue increases. Do you still stand by that?

GRAHAM: Yes, I would -- here is what would happen if we had a requirement to balance the budget. Both parties would have to do it. There would be no excuses. You would have to do something about entitlement spending, it's 57 percent of all spending is Medicare, Social Security, and Medicaid, we would have to address that in a bipartisan fashion.

We would have to make some hard decisions. And I would be willing to close loopholes like the ethanol subsidy, I would be willing to eliminate that, take some of the money to pay down tax rates to create jobs, and some of the money to go to retiring the debt.

I would be willing to close loopholes and put some of the money on debt retirement, but I will only do that in the context of a serious plan to balance the budget.

And I have been here since 1995, and I know what is going to happen. If we passed a balanced budget amendment to the Constitution, it would get ratified by the states and we would get this country back on track.

And if we don't do that, we are just kicking the can down the road.

CROWLEY: If I could get a yes or no here because we're running out of time, if you cannot get the Senate to pass what the House surely will this week, you will allow the U.S. to go into default or you will go to a plan B, which?

GRAHAM: I am going to focus on plan A. That, to me, is the only plan that will work. It's the real deal, not a big deal.

CROWLEY: Well, if it helps at all, the White House is not budging either. It's just hard to know how you all are ever going to come to any kind of agreements. Senator Lindsey Graham, thanks so much for joining us this morning.

GRAHAM: Thank you.

CROWLEY: Up next, why Rudy Giuliani is considering another run for president.


GIULIANI: I think that I probably have the best record in terms of having done something similar to what the country needs done right now.



CROWLEY: In the Republican presidential field we have a handful of not quite candidates conducting uncampaigns, which is sometimes a prelude to a real campaign, and sometimes just an interesting activity or a maybe a way drive up speaking fees.

Rudy Giuliani is one of the not quiets. When he lost his first presidential bid in 2008, the former New York mayor went right to the top of the polls, but early results were disappointing to put it mildly. And Giuliani dropped out after the first few primaries.

He is no early bird this time around, the man who gained national prominence and accolades for his in your face take charge approach during 9/11, is patient now on this new journey, shaking hands, listening, holding private meetings in New Hampshire. He says he will decide by September.

Whether it's his new approach or the familiarity of his name, Giuliani is doing all right in New Hampshire, currently third in a recent American Research Group poll behind Mitt Romney and Michelle Bachmann.

I caught up with Rudy Giuliani at a Harley Davidson dealership in New Hampshire. Yes, really. Our conversation is next.


CROWLEY: Mr. Mayor, thank you for joining us. Great spot to meet up with you.

GIULIANI: Great setting.

CROWLEY: You have said that you would get in if you had the best chance to beat President Obama. So let me try to get into your thought process about this, if there is one. And you can tell me if there is or isn't.

GIULIANI: I am not sure how much there is, but we will find out.

CROWLEY: Why, for instance, would you be better than Mitt Romney?

GIULIANI: Well, I can tell you why I think I would have certain strengths. I think that I probably have the best record in terms of having done something similar to what the country needs done right now. I look at the other candidates, and they have all done very impressive things, but none of them really had to take over a city, one of the largest economies in the country and one of the most complex when it was in terrible trouble and turn it around and have definable results.

I am not just saying it or believing it or thinking it, I can show we started with 10 percent unemployment we got it down to 5, we started with 1.1 million on welfare we got it down to 500,000, we started with a $2.3 billion deficit, turned it into $3 billion surplus. This is what the country needs right now.

CROWLEY: So you need someone who is -- so you think the best person to beat President Obama is someone with a turn around expert, is basically what you are saying, somebody who has governed?

GIULIANI: I think it would help given what the issues are right now, the economy, and I think that to look at it as objectively as he can. The economy is in very, very difficult conditions. It has been that way for a long time. President Obama has presided over the longest string of very high unemployment since the Great Depression and hasn't really done much about it, promised to do things about it, said the things he did would bring unemployment down like the tremendous stimulus, and the tremendous trillion-dollar stimulus was supposed to get us down to 7 percent unemployment, we're at 9 percent unemployment.

These are pretty horrendous results. This is about as bad a record in guiding our economy as any American president has had since the Depression.

CROWLEY: You know, you have people like Mitt Romney, Tim Pawlenty, Jon Huntsman, they all have governed states, they all have a record their running on saying I helped with unemployment, I -- this kind of thing. So I am just trying to figure why they -- you're trying to decide why you have a better chance to beat President Obama, and I am trying to decide why you would think that given that they also have records?

GIULIANI: Well, they do. But they have records and they have impressive records, but I don't remember their states being in the kind of condition New York City was in.

I got elected on a campaign theme you can't do any worse, because we were in such bad shape. We were the crime capital of America. We were supposed to be in inevitably decline. We would never come back again. Time magazine wrote an article saying New York City's best days are behind it, we'll never have good days again. Reminds you a little of what they're writing about the country right now.


CROWLEY: You sound like a guy who actually thinks...

GIULIANI: So, we turned that around. So when I look at that as objectively as you ever can about yourself or the situation you're in, it seems to me that that is roughly where the country is right now.

CROWLEY: You sound on this question of could I -- do I have a better shot at it, you sound like you have made up your mind.

GIULIANI: No. I haven't. No. I have been here six times this year, about eight times last year, so I really know New Hampshire, trying to figure out what kind of a chance I would have here. Then of course you have got to go further than here, you've got to win a few more after this, even if you think you can win this one, and I am not sure I can.

And probably by the end of the summer, at some point like that, I will be able to figure it out.

CROWLEY: Is there anyone in the field right now that you could not campaign for should you decide not to run?

GIULIANI: I don't think so. I mean, they haven't all laid out their case yet, so I don't really have a sense of who the best ones are yet. But I don't think -- look, I am going to campaign for a Republican candidate for president whether it's one of the people in the field, myself, or maybe somebody new that comes into field, of which there are one or two that are pretty darned impressive.

CROWLEY: And who be -- who is that impresses you that is not in yet?

GIULIANI: Well, whose not in yet? Rick Perry is not in yet, Rick has got a great record, probably one of the strongest records of any governor in America, and one of the longest running governorships. Rick is a good friend. So Rick will be someone...

CROWLEY: He's talking to your fund-raisers by the way, next week.

GIULIANI: Oh, gosh, well, you know.

GIULIANI: My fund-raisers, very often during a campaign, contributed to me, to John McCain. Last time I had a lot of overlap with John McCain, which was, you know, part of the problem, also. And then John just beat us.

CROWLEY: Mr. Mayor, let me ask you to stand by. When we come back, we want to talk a little bit about those debt ceiling talks.

Be right back.



CROWLEY: Once again with former New York Mayor Rudy Giuliani. Thank you for being here.

I wonder if you worry, politically, that the Republican Party, from what you're looking and watching in Washington, with the debt ceiling, is losing the political edge here. Do you think, politically, they are beginning to lose this battle with the president?

GIULIANI: No. No, no. I think that the battle, who's going to win it or who will lose it is still up for grabs, and it's hard to know.

I'm, sort of, disappointed that it's come down to that. I mean, this shouldn't be about does the president win or do the Republicans win?

CROWLEY: But it always does. It's Washington, as you know, and...

GIULIANI: Yeah, but it shouldn't be. This is too -- this is too big -- this is too big an issue to play chicken with it.

CROWLEY: And you have said that you think the debt ceiling has to be raised?

GIULIANI: America shouldn't default. I mean, there's no -- I sympathize with the people who say Secretary Geithner could be exaggerating, but I sure as heck don't want to test that.

And I can tell you one thing, there's nothing good about defaulting.


I mean, that isn't a good thing to do, particularly for those of us who are conservative Republicans who have a great deal of sense that, you know, you've got to -- you've got to have a balanced budget; you've got to pay your debts; you've got to, kind of, work these things out. You can compromise somewhat, but you can't compromise too much. So I hope...

CROWLEY: Well, if you were sitting at the table, would you say, yeah, I'll agree to closing loopholes on oil and gas companies for 1.5 or 2.5 or any amount of spending cuts?

GIULIANI: I wouldn't do -- I wouldn't do -- I wouldn't do tax increases as a way to compromise.

CROWLEY: Any? None?

GIULIANI: If we're going to compromise, let's compromise about the spending decreases and the extent of them. Because we would like to go a lot further than the Democrats would go. And I think there's area for negotiation there. I would not raise taxes. I think it would be a disaster.

CROWLEY: Even if that meant putting the country in default -- in this game of chicken that you say...

GIULIANI: No, no, I wouldn't do it.


CROWLEY: ... putting the country in default...

GIULIANI: I think -- I think raising taxes is -- would be a disaster for our economy right now. We should be slashing our corporate tax in half. I mean, it's ridiculous. We have the highest corporate tax in the world and we complain about money going overseas. Why does money go overseas?

Because the tax rates are half of what they are in the United States and we're still stupid enough to keep a 35 percent ceiling on our tax increase and, kind of, sell it to the public like, oh, gee, let's tax the rich. Well, what we're doing is, sure, we're taxing the rich, but we're taxing ourselves out of jobs.

CROWLEY: But somebody is going to have to blink here.

GIULIANI: Right, and I think -- and I honestly think that's where the compromise will have to be. I think the president understands that there are two realities you have to come up against. There's a Republican House of Representatives and the Republicans don't have control. The president cannot ask the 85 new members of Congress who were elected on a solemn promise they're not going to raise taxes to raise taxes.

CROWLEY: Well, he can. I mean, if you were -- if you were...


GIULIANI: He can -- unless -- but then he's not a good president. Here's what -- in order to get somebody to compromise, you have got to figure out how to get him to do something that isn't going to commit suicide.

Well, if they had agreed to a -- to a tax increase, they're committing political suicide. You don't ask someone to shoot themselves.

Now, on the other hand, the Republicans can't ask for the massive reductions that they would like to get, or maybe even, you know, an agreement to a balanced budget amendment, even though I'd like to see a balanced budget amendment, they don't control the entire government. They don't control the Senate; they don't control the presidency.

And the -- both sides have to have the maturity and the wisdom to figure out what's a deal where we give but we don't ask the other guy to commit suicide. We don't want -- the president can't be asked to do that and the Republicans can't be asked to do that. You never make a deal that way.

CROWLEY: Let me move you along. Osama bin Laden is dead. We are told by any number of sources that the number of Al Qaida in Afghanistan is down to a handful, perhaps two dozen or so. There are those in the presidential race who say, look, we can get out a lot quicker even than President Obama thinks we can.


Is our mission done in Afghanistan?


CROWLEY: Why not?


CROWLEY: We got the folks who did it.

GIULIANI: Our mission is not -- is not done in -- our mission in Afghanistan was not just to capture and bring bin Laden to justice, although that was a big part of it, and I commend President Bush and particularly President Obama for having carried it out. I thought that was one of the high points of his presidency for which he will always get credit historically, whether he wins or loses re-election. It was a gutsy decision and the president carried it out 100 percent.

But our mission in Afghanistan is to basically end Al Qaida and get the Taliban under control so it doesn't go back to what it was in the past and to create a stability there so they don't threaten us in the future, so that doesn't become again the breeding ground for attacks on America the way it was in 2000 and 2001. We're not there yet. Afghanistan is in a state of chaos and confusion, not in a state where we can honestly say in good conscience that we've put it in a situation where we don't need to be there in order to protect ourselves.

And here's what I think has been a big lack of leadership. Somebody has got to explain to the American people that we need to be in that region of the world for the -- for the indefinite future, without time limits. Far more effective would be you put in the troops and you don't tell anybody when we're going to leave. You know when we leave? When we've accomplished our objective.

CROWLEY: Let me ask you, as a final question, a domestic question. In the next couple of weeks, the first same-sex marriages will take place legally in New York. You have always said that you were for civil unions, but that you thought marriage was between a man and a woman...

GIULIANI: I do, and I still believe that. I think that marriage should be between a man and a woman, but I think that the Republican Party would be well-advised to get the heck out of people's bedrooms and let these things get decided by states. And the reality is that this is something that New York decided by a democratic vote. I think it's wrong, but there are other things that I think are wrong that get decided by democratic vote.

CROWLEY: You can live with it, it's fine? You don't see any harm that's going to come to New York-- GIULIANI: I don't see harm, although I think it would be better for stability of families and everything else if we kept marriage between a man and a woman. I see more harm however by dwelling so much on the subject of gays and lesbians and whether it's right or wrong in politics. I think we got far -- not necessarily more important things, but far more relevant things to talk about what government should be talking about--

CROWLEY: Move on.

GIULIANI: -- how to deal with the budget, how to deal with Afghanistan, the things you and I have been talking about. That's what we should be talking about. The rest of it -- if you are a libertarian Republican or you have a streak of libertarian Republican, I don't know what the heck the Republican Party wants to getting involved in people's sexual lives and personal lives so much. Stay out of it, and I think we would be a much more successful political party if we stuck to our economic conservative roots and the idea of a strong assertive America that is not embarrassed to be the leader of the world.

CROWLEY: Mr. Mayor, thank you for spending some time with us here in this very unusual -- it's the first time I have every done an interview in a Harley Davidson place, but thank you so much.

GIULIANI: I am dying to drive one of those things.

CROWLEY: Well, you and me both. We'll do that a little later.

So should I bet, yes or no, on your getting in?

GIULIANI: Oh, gosh. I know betting is illegal in this state.

CROWLEY: This is just a (inaudible) thing. Thank you so much. I appreciate your time.

GIULIANI: Thank you.


CROWLEY: We have more with Rudy Giuliani on our website, including his reflections on the 10-year anniversary of 9/11. Go to

Up next, President Obama's $86 million fund-raising haul showed the field of Republicans just how hard it will be to beat him. Our political panel is next.


CROWLEY: Joining me now, Ron Klain, former chief of staff to Vice President Joe Biden, and former Republican congressmen, Tom Davis. Gentleman, welcome both.

Rudy Giuliani you just heard say I really think that the Republican Party would be well advised to get the heck out of what he called peoples' bedrooms and leave gay marriage to the states to decide.

I found that remarkable for a guy thinking about running for president, but I can maybe think he's not running.

TOM DAVIS, FORMER REPUBLICAN CONGRESSMAN: I am not so sure. I mean, I don't know what he's going to do, but remember this, New Hampshire, South Carolina, Florida, all of these states allow independence to vote in their primary, the attitudes on gay marriage are changing. It's generational at this point. I think a lot of political people think Republicans are on the wrong side generationally of this particular issue. And doesn't need to be part of the party platform. States can decide.

CROWLEY: We're also learning that perhaps Rick Perry is getting closer and closer to jumping into the race. How does it change the mix?

RON KLAIN, FORMER CHIEF OF STAFF TO VICE PRESIDENT BIDEN: Well, I think Governor Perry will be a substantial candidate in the race. But what it shows you is that for Mitt Romney and Sarah Palin and Michele Bachmann and the candidates who have been out there for more than a year testing their message and trying to raise money there is a great deal of dissatisfaction among their own party in the choices. And so here we are well into the race and people are looking for new Republican candidates.

That tells you a lot the field that is out there now.

CROWLEY: Does it really? Because I seem to remember there's always -- you know field whether you're a Democrat or a Republican and you look at your field and you go, oh, they all look like dwarves, they all look like midgets. And eventually it grows on you.

DAVIS: Candy, Republicans right now are organized around one thing. They don't like the direction of the Obama administration. After that, they break into a lot of different factions. I think there is no one leader at this point. It will be interesting to see how much money he can raise. Iowa is going to be tough to beat Bachmann now. He's going to have to get in there and organize early...

CROWLEY: Perry, we're talking about?

DAVIS: I am talking about Governor Perry.

You know, New Hampshire is going to be tougher sledding for him. But if he wants to get in, now is the time. And as I said, Romney is the leader, but it's not overwhelming at this point.

That's how a guy like Donald Trump could get in and move to the point. At this point, the party is leaderless.

CROWLEY: Still sort of looking?

DAVIS: Exactly.

CROWLEY: Not really set on anyone.

KLAIN: I'll agree with leaderless. You got me there.

CROWLEY: Let me sort of put up some of the fund-raising numbers that we have seen, starting with the president who when you put together his $47 million for the re-election add it to what the DNC did, $86 million. He has collected more money than the entire Republican field put together.

What does that tell you?

DAVIS: It tells you he has got a potent fund-raising machine. He still has a potent base. He is going to be a formidable candidate for re-election. But I remind you that a lot of the money that comes into these campaigns now is outside the parties and the candidates. Independent groups are raising more money than parties and candidates at this point. And I think there will be plenty of money on both sides of the campaign.

CROWLEY: And by the way, last time around, Democrats went crazy about these independent groups. Oh, this is just skirting the law. Now, of course you're putting together the exact same of operations to kind of go toe-to-toe with the Republicans.

KLAIN: Well, you can't unilaterally disarm in politics, unfortunately. And the reality is the rules are the rules. And we have to play that way too. But I think the important point here, Candy, is you saw the president's fund-raising response. This isn't just about the money, it's about hundreds of thousands of grassroots donors.

You know, people talk about Michele Bachmann being the grassroots candidate, the president had ten times grassroots as many grassroots donors as Michele Bachmann. And there are still...

CROWLEY: 60,000 new...

KLAIN: Yeah, and there's still hundreds of thousands, even millions more who participate last time who will be coming in later.

So I think what you are seeing here is not just money but tremendous grassroots support for the president in this election.

CROWLEY: And doesn't it also tell you -- when I looked at those numbers the first thing I thought was this whole story line that somehow the base is going to abandon President Obama is nonsense.

DAVIS: I think -- yeah, I do think along the Democratic base, and we saw it in the off-year elections, the turnout model was not as heavy, but I think with the president running for re-election, the polarization we're seeing, it's going to be a close election. I think they recognize this will be a lot closer than the last time.

He still has a lot of vulnerabilities with independent voters, though.

CROWLEY: And this is true, he really is -- and we all know that's where it is. Now you can bring new people in.

KLAIN: Right, look, it is going to -- I agree it's going to be a close election, I think it's going to be a hard-fought election. I think we're still in tough economic times. The president has made some courageous decisions. They're starting to pay off. We're starting to see results, but we are not there yet.

And I think that is going to make it a very tough election. But I'm absolutely confident that when you look at the grassroots support the president has, rallying the base, and then you look at where he is in the political dialogue versus the extreme positions the Republicans are taking, he's going to energize the base, capture the middle, and win re-election.

DAVIS: It's a little wishful thinking. But the president does change the model in terms of voter turnouts, with minority voters in particular. He just changes the turnout model in a lot of these states. It makes him more formidable than a lot of other liberal candidates would be.

CROWLEY: Let me ask you about the debt ceiling debate. Who -- Rudy Giuliani said, no, I don't think the Republicans are losing this at all. I think it depends on who the audience is. But nonetheless, who at this point do you think is suffering, if any -- well, maybe both parties are doing exactly what they want.

DAVIS: Well, Candy, let me make a point. We killed Osama bin Laden and now that's forgotten. Really what's going to matter is, where is the economy a year from now? This debate will be long forgotten next year. And we're spending too much time over who wins.

We do know this, that if the Republicans and the Democrats don't come together in this and one party gets unduly blamed and the economy goes into a tailspin, there will be a price to pay.

CROWLEY: And in fact, let me just ask you one thing just picking up on that. And that is that we know there's a new Goldman Sachs report out where it's telling its investors, listen, we're lowering what we think the growth rate is going to be in the third and fourth quarter, and, by the way, we think at the end of 2012 the unemployment rate will be no better than 8.7.

OK. That's just no way to win an election, is it?

KLAIN: Well, I think the question is, who is doing more to try to help fix that? And look, you look at this debt ceiling thing, and the position of the Republicans is just extreme. They're talking about one-sided solutions.

You know, when Ronald Reagan was president, he raised the debt limit 17 times, 11 of those involved revenue increases. Now Republicans are saying, maybe we don't need to do that. We're seeing the party of Reagan become the party of Bachmann. And that is not a winning political strategy in America.

CROWLEY: Now that's twice we've heard the word extreme in two answers. And I think we know where the Democrats are going. And what is the pushback when the Democrats will say, as I'm sure they will, these people held up the U.S. economy trying to protect corporate jet owners and rich people?

DAVIS: Well, corporate jet owners -- I mean, part of that came out of the stimulus package. It was actually, the cuts...

CROWLEY: But you get what I mean, the whole thing is going to be, oh, they're protecting...

DAVIS: Well, let me just say, the Republicans are the only ones that have passed a budget. You take a look at the president's budget, got no votes in the Senate. Senate Democrats didn't even put the budget forward. At least the Republicans have put something up there.

You can't score a speech. And basically the president said we want to look at all of these options. But tangibly he has put nothing forward that I think anybody can look at.

KLAIN: That's not true. Look, the president has talked about a balanced approach that involves both revenues and big spending cuts.


CROWLEY: But if he doesn't get anything...

KLAIN: The Republicans are digging in here.

CROWLEY: Right. But who gets hurt the most if there is no deal or if there's just a deal to kick the can down the road? Who gets hurt the most?

DAVIS: Candy, I think the next week -- well, look, let's see where this unfolds. At this point the president has got the bully pulpit. Congress is divided. It always gives the president a leg up on this. We saw this in the Clinton years.

But we have another week-and-a-half to play this out.

KLAIN: Look, I think the president wins because he's the adult saying we need to do something smart, sensible, balanced, reasonable.

CROWLEY: Well, of course, so is John Boehner.

KLAIN: Well, you know, but the problem with John Boehner is, he leads a caucus that's badly divided. He, so far, hasn't been able to deliver his own followers to follow his position. So I think the president, as Tom said, he has the bully pulpit, he is commanding the conversation, he is seeming reasonable, he is seeming balanced.

You know, I think that's not only good politics, it's good for our country. It's what we need to do as a nation to keep the economy going and to grow economy.

DAVIS: And Pelosi has also drawn a line in the said. Nancy Pelosi has said, no cuts to Medicare, Medicaid. CROWLEY: The Republicans sort of saved the Democratic divide. In other words, that would have been a big deal except the Republicans said no to tax increases.

DAVIS: I think one thing we agree on, these members come from safe districts, most of them. It makes it hard to compromise. Republicans go back and talk to Republicans, Democrats go back and talk to Democrats. Very little political reward in compromise.

CROWLEY: Let me ask you real quickly in our last 30 seconds. I think John Boehner and Barack Obama have a common goal, and that is, people want their leaders to lead. So if Boehner wants the House to remain Republican, he needs a deal. And if the president wants to go back to the White House, he needs a deal. Yes? No? Go ahead and agree with me.

KLAIN: I think the country needs a deal and I hope Republicans will come to the table and get one done.

DAVIS: I agree with you. History shows when presidents are re- elected, congresses get re-elected.

CROWLEY: Thank you so much, I appreciate it, Ron Klain and Tom Davis, thanks so much.

Up next, a check of today's top stories, and then "FAREED ZAKARIA: GPS" at the top of the hour.


CROWLEY: Now time for today's top stories. Former News of the World editor Rebekah Brooks was arrested today in connection with British police investigations into phone-hacking and police bribery.

Casey Anthony walked free from a Florida jail shortly after midnight this morning. About a thousand onlookers stood outside the jail watching as she left with her lawyer. Anthony was released 12 days after a jury found her not guilty on murder and child neglect charges in the death of her 2-year-old daughter Caylee.

The first stage of NATO's handover to Afghan security forces began today. The handover took place in Afghanistan's Bamyan province, the first of seven areas set to resume security responsibilities this month.

And Libyan leader Moammar Gadhafi is vowing never to leave his country. Gadhafi's remarks were broadcast at a rally of his supporters this weekend after the United States recognized the opposition transnational council as Libya's legitimate governing authority.

Those are your top stories. Thanks for watching STATE OF THE UNION. I'm Candy Crowley in Washington. Be sure to tune in next Sunday at 9:00 a.m. Eastern for my interview with Republican presidential candidate and former Minnesota Governor Tim Pawlenty.

Up next, for our viewers here in the United States, "FAREED ZAKARIA: GPS."