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STATE OF THE UNION WITH CANDY CROWLEY

Interview with Tom Cole, Marsha Blackburn; Interview with Christine Lagarde

Aired December 9, 2012 - 09:00   ET

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


CANDY CROWLEY, CNN ANCHOR: To recap the past week of activity atop the fiscal cliff: nothing happened.

Today, the search for a sweet spot between the deal the speaker can get from the president and the one he can sell to his bruised party.

(BEGIN VIDEO CLIP)

BARACK OBAMA, PRESIDENT OF THE UNITED STATES: They've put forward an unbalanced plan that actually lowers rates for the wealthiest Americans.

REP. JOHN BOEHNER, (R) OHIO: When is he going to take a step towards us.

(END VIDEO CLIP)

CROWLEY: The speaker's box: a conversation with Republican House members Tom Cole and Marsha Blackburn.

Then, falling off the fiscal cliff, a tumble that would shake the world with International Monetary Fund chief Christine Lagarde.

(BEGIN VIDEO CLIP)

LAGARDE: The real threat that we have at the moment is really here with us.

(END VIDEO CLIP)

CROWLEY: Plus, what happens if nothing happens with Moody's chief economist Mark Zandi, Jackie Calmes of the New York Times, Steven Moore of the Wall Street Journal and CNN's Dana Bash.

I'm Candy Crowley and this is State of the Union.

Politically, the speaker is playing with a weaker hand than the president, the pressure is higher on him and his critics are louder, too.

(BEGIN VIDEO CLIP)

RUSH LIMBAUGH, RADIO SHOW HOST: Just need Boehner to go along with raising the rates and that's it. Republican party is finished.

MARK LEVIN, RADIO HOST: He is selling out our children right now with these massive tax increases, and that's his starting bid. He is saying here is $800 billion, now will you sit down with, Obama?

(END VIDEO CLIP)

CROWLEY: Twitter hashtags with names like #fireboehner have become popular as both the right and left chime in.

Still, where the votes get counted in his caucus of Republicans, Boehner seems to have more room to maneuver than he did in pre- election faceoffs over fiscal matters. But more leeway is not unanimity. It begs the question, even if the Republican speaker gets a deal, can he get it passed?

Joining me now, Republican congressman Tom Cole of Oklahoma, Republican congresswoman Marsha Blackburn of Tennessee, thank you both so much for joining us.

And I think that's really the key question that we keep hearing, they'll get a deal -- they'll get something. But it doesn't matter if the two of them get a deal, it matters if the speaker has the House votes for it. Tell me about the zeitgeist inside the caucus now in how free of a hand the speaker has.

BLACKBURN: You know, I think that inside the caucus what people are looking at is how do we solve the system-wide problems. And if you're going to talk revenues, you have to talk cuts, you have to talk reform of your trust funds Medicare and Social Security and you've got to deal with entitlements.

CROWLEY: You've got 30 -- less than that, 20 something days to do that.

BLACKBURN: That's right and these are things that we have been talking about for years. Now the fiscal cliff is a name that the media came up with, but some of us have been saying for years, you have got to stop the out of control federal spending or you will end up at this point, we're there.

CROWLEY: Congressman Cole, let me -- I just want to the remind folks of something that you have said about the middle class tax cuts and letting them go on and also you're reply to that. I just want to the play that to get our viewers up to speed.

(BEGIN VIDEO CLIP)

COLE: In my view, we all agree that we're not going to raise taxes on people that make less than $250,000, we should just take them out of this discussion right now.

BLACKBURN: He has his idea, I don't want to raise taxes on anybody.

(END VIDEO CLIP) CROWLEY: It seems to me now this is the split I think inside the Republican caucus...

COLE: Actually, I don't think so. I think there's actually more discussion about tactics than it is any difference. None of us want to raise the rates on anybody, but the reality is the rates on everybody go up at the end of the month. Since we degree with the Democrats on 98 percent of the American people and 80 percent of the Bush tax cuts, to me, I would just get that off the table now so they don't worry about it.

I think those people are actually the president's leverage in this debate. It's the Democrats that are going around screaming your taxes are going to go up, your taxes are going to up if Republicans don't agree. So let's just make sure that for 98 percent they know they're not.

Now we can continue to fight on the other two percent and the higher rates...

CROWLEY: But you lose your leverage a little bit. Isn't that the argument against it?

COLE: No. Actually I think it's quite the opposite. We gain language -- we gain leverage.

CROWLEY: So you would go along with something like that?

BLACKBURN: No see, I have a different approach. The good thing is we are the party of big ideas. We're putting ideas out on the table and saying this is how we solve this. Let's talk about it.

Now, what I want to do is make certain that no one's taxes go up. Let's look at cleaning up the tax code. And Candy, the problem here is as one of my constituents said to me yesterday, it is 2 percent today, tomorrow it's 10 percent. And people know just like this, federal income tax that went on the books in 1913, it's coming to them real fast.

CROWLEY: But congresswoman, there's two realities here. One, the calendar. You can't get tax reform between now and the end of the year. You can't get entitlement reform between now -- as you say, people have been talking about it for decades, they're not going to get it done before the end of the year.

And number two, you all lost the election, so would you think that doesn't put some limitations on what you can ask for here? You lost members of the House, you lost members of the Senate, and you lost the White House.

BLACKBURN: A couple points here, number one, the president thinks he has momentum, I think he is running on adrenaline from the campaign.

Second thing, we won the House.

CROWLEY: But you lost seats.

BLACKBURN: And the American people have put us there -- you're right, we did -- but the American people have clearly said we don't want our taxes to go up. What we need do -- I mean, the Lincoln quote, that Lincoln movie now, you know, you've got to deal with the issues of tomorrow by looking at it today. You cannot be practicing escapism and not putting these issues on the table. It is an imperative to deal with the spending.

CROWLEY: Congressman, what is the art of the doable here for Republicans?

COLE: Well, the first thing that's doable is to take the things you agree on and get them off of the table.

CROWLEY: And that would be tax cuts for people...

COLE: ...get it done.

CROWLEY: In your caucus, do you have a lot of -- is there a lot of burgeoning Republican support for that?

COLE: Yeah, honestly I think if it got to the floor, it would carry.

CROWLEY: Ah, well in the House that's the big deal, though, is getting it on the floor.

COLE: I think it would. Look, that's my judgment, but I spend a lot of time counting votes and looking around. But this doesn't say we're going to raise taxes on anybody, it says OK this group for sure, your taxes aren't going up. Get that done with, get it over with.

Then move on. The speaker has put out a proposal that does not raise rates, that does generate revenue. That makes a lot of sense to me.

But you have to always remember at the end of the month taxes are going to go up for everybody. So let's make sure where we can we save as many of those tax cuts for as many people as possible and continue to fight. You know, it's not waving a white flag to recognize political reality.

CROWLEY: If Speaker Boehner comes to you all with a package that promises entitlement reform, or puts us on a path to it, or whatever, it does the same thing when it comes to spending cuts, does he have support within the caucus for raising tax rates?

COLE: Well, remember, tax rates are going up anyway. So we're not, quote, raising them. That's current law. Now I think what the speaker has supported -- and you should look at the proposal he put out, the most interesting thing to me was every single one of our major leaders signed it, Paul the major committee chairman, including Paul Ryan who really has an obvious outsized role because of his vice presidential nomination signed it.

CROWLEY: That's $800 billion worth of revenue.

COLE: And so this is a speaker that's very strong. This is a speaker that got us through a tough election and retained our majority. I actually think this is a speaker at the peak of his power.

Now the president is going to have to deal with him. And it's not just about this period of time, it's about the next four years. The president will be president for four years, John Boehner is very likely to be speaker for four years. So this is the first part of a relationship that's going to stretch for years and they both need one another to succeed.

But honestly, the president needs John Boehner more than John Boehner needs the president.

CROWLEY: Does the speaker have enough votes inside his caucus to agree to some kind of tax rate hike in the upper echelons of society, the high wage earners? Does he have those votes that he can put together with whatever Nancy Pelosi can stir up and pass it? Is that support in the caucus?

BLACKBURN: I'm not sure there is support for the rate hikes. There is support for revenue by cleaning up the code.

CROWLEY: Can you tell me what the difference is there? Because isn't $800 billion in collected revenue by any other name still a tax hike if you're not?

BLACKBURN: You know, there are so many things, and as I said, this has been part of the debate for years, looking at cleaning up the code. And Candy, getting in there, and there are so many ways you can do it. Maybe you want to cap total deductions, maybe you want to look at some of these tax credits and clean this code up. Dave Camp has put an incredibility amount of time into this, has a plan. He and Kevin Brady out of Texas have worked on this. It is the time -- this is the opportunity to clean that code up.

COLE: If we don't act before the end of the year, taxes go up for everybody, not for 2%, and it's a lot more than $800 billion. There's a big difference between the temporary tax code that runs out, and us proactively raising taxes. And actually in this case...

CROWLEY: On the wealthy, it would run out.

COLE: Yes, some of our people think if we just dig in and hold strong we can stop it, that's just not the case, it happens automatically. You have to do something. And doing something requires the cooperation of the Senate, which the Democrats run, and the signature of the president. So we're not going to get 100 percent of what we want, but we can get a lot. John Boehner is trying to focus this where it belongs, and that's on spending restraint and entitlement reform, because this revenue won't come close to dealing with our fiscal problems.

CROWLEY: But by and large, could you see your way clear to saying I get it, you know, Republicans are taking a bath on this politically, and you have seen all the polling, Republicans will be blamed if the taxes go up on the middle class.

CROWLEY: Do you think that you could you see your way clear at some point to pass the kind of package that the Senate has passed that has -- it keeps those tax rates intact for the middle class and has some child care tax credits and some other things in it? could you pass that, because it is the party of not allowing tax rates to go up.

BLACKBURN: Well, the problem with the rates going up is there again the more people know about this, they're saying, but look, then you're going to come back and you're going to get the tax cuts that were there for me. What we want to do is make the cuts permanent and spending temporary. And I quite frankly like the fact that the American people American people are more engaged on this issue than they have ever been. And that are watching very closely.

CROWLEY: But the tides are running against the Republicans holding on to that is it not?

BLACKBURN: The more people know about this, Candy, the less they're against us. I've talked with people at home all weekend. And when they find out what is out there...

CROWLEY: But you're in a very specific part of Tennessee as well.

COLE: My constituents get that that they're taxes are going up unless we act. And they would like to be taken out of the line of fire. They expect me to continue to fight for everybody's taxes not going up, but if I can get a deal that protects 98 percent of them, and leaves me free to continue fight for the others, they would say take that deal. That's progress. That's maybe working together across the isle a little bit and get it down.

CROWLEY: I have got to run, but I need a one word answer from -- a yes or no -- from either one of you, will House Speaker Boehner still be speaker after the elections inside the caucus?

COLE: Absolutely.

BLACKBURN: Yes, he will be speaker.

CROWLEY: OK. Thank you, so much. Congresswoman Marsha Blackburn, Congressman Tom Cole, appreciate your time today.

When we return, what happens to the global economy if the U.S. goes over the fiscal cliff?

(BEGIN VIDEO CLIP)

LAGARDE: Markets I think would react very quickly.

(END VIDEO CLIP)

(COMMERCIAL BREAK) CROWLEY: The United States accounts for 20 percent of the global economy, so no surprise the world is watching that fiscal cliff. As head of the International Monetary Fund, Christine Lagarde says U.S. leaders need to reach a deal and soon before that uncertainty damages the global economy. I spoke with her earlier.

(BEGIN VIDEOTAPE)

CROWLEY: Let me start out, because we have new unemployment figures this week, which shows that unemployment has dropped to 7.7, lowest in four years, job numbers 146,000 new jobs created. Translate that for me from your perspective into what it means about the U.S. economy. Describe the U.S. economy through those figures.

LAGARDE: The U.S. economy is creating jobs, right? Which means that it's doing a bit better, and some people decided they were going to open new positions, which is a sign of trust in the economy. In addition to that, you have got a housing sector which has begun to pick up, at least it's bottoming out now. You have got households that have reduced their debt, in general, so you have quite a few signs that the situation is beginning to improve from, you know, five years of crisis essentially.

Yet, not all numbers are good. If you look at the deficit, high, much higher in the U.S. than in the EuroZone, for instance. If you look at debt, much higher than many countries in the EuroZone including Spain, Germany, France. Yet, the United States of America is able to borrow at the lowest rate in pretty much its whole recorded history.

So you have a very, very diverse landscape at the moment. But certainly one that could be significantly improved, or worsened by the situation that we have concerning the fiscal cliff, the fiscal deficit, and the debt of the country, three topics that can be addressed now on a comprehensive and efficient fashion.

CROWLEY: In the fiscal cliff negotiation. So what should this mean? Because I think I could interpret any given number to say oh that means we shouldn't touch taxes for the upper brackets because the economy still needs as much money as it can have in it. Or, I could argue, oh, this means that we need more stimulus to keep the jobs going. Or I could look at the debt and say, oh this means we need to cut spending.

So what does it mean? What -- what would you, and what globally, what would mean the most for the U.S. to do in terms of the global economy?

LAGARDE: You know what you said? You would qualify as an economist. On the one hand, on the other hand -- the truth of the matter is that the best way out of this would be a balanced solution. You will always find a school of thought that will say it's much better to cut spending. You will find another school of thought that that will say no, no it's much better to increase the revenue and therefore to raise taxes. And in the middle of it you will have people that will say in any event we have to reduce debt therefore cut deficits now and in the long run.

We have seen studies of all sorts. And they will not demonstrate the absolute truth.

My view, personally, is that the best way to go forward is to have a balanced approach that takes into account both increasing the revenue which means, you know, either raising tax or creating new sources of revenue and cutting spending as well.

CROWLEY: I mean, right now here's what it looks like. It looks as though they're going to keep the tax rates for the middle class the same and pass that with maybe without any work on entitlements and maybe with a promise to sort of look for places to cut. Is that enough to keep the world feeling secure about the U.S. economy?

LAGARDE: I don't think that it's enough. Because there is still that degree of uncertainty that fuels doubt, that prevents investors, entrepreneurs, households from making decisions because they don't know what tomorrow will be. They know that a fix has been found for today, but there is still work to be done tomorrow and the day after tomorrow. So it would be much better to actually have a more comprehensive approach and to deal with all the issues.

CROWLEY: What is your level of confidence right now, three weeks before something needs to be done?

LAGARDE: Well, my confidence is deeply rooted in the affection that I have for the United States. Its history, its characteristics, its culture. And I believe that there is a sense of being practical, addressing the issues, rather than dancing around and avoiding issues that I have seen in this country, and that is described by many observers, whether they are economists or writers, or politicians. And I certainly hope that that sense of pragmatism will prevail, and will bring people to look at a broader picture, than, you know, what happens within the Beltway if I may say.

CROWLEY: You also, I think at one point, predicted the U.S. growth rate of about 2.3 percent next year, but that included keeping all of the -- what we call the Bush era tax cuts. What do you see in terms of growth for the U.S. next year?

LAGARDE: Our forecast has been slightly revised downwards to 2.1 percent. 2.1 percent.

CROWLEY: It's not very much.

LAGARDE: It's not, you know, but it's better than--

CROWLEY: It's not losing, right. LAGARDE: It's positive. But if the U.S. economy was to suffer the downside risk of not reaching a comprehensive deal, then growth would be zero.

CROWLEY: And when we look, a lot of times when our politicians talk about the U.S. economy, they say, well, we don't know what is going to happen in Europe and we don't know what's going to happen in Greece, and we don't know what's going to happen in the euro zone or this and that, and the energy needs of China and India, emerging democracies, and industrialized nations, et cetera -- what do you think is the biggest threat from the outside to the U.S. economy?

LAGARDE: The fiscal cliff. Because it will have--

CROWLEY: We've met the enemy and it is us?

LAGARDE: Well, first of all, I think that there are issues that are beginning to improve, and you know, whether you look at the euro zone, which is making progress, gradually, laboriously, but certainly improving, and with good numbers, because if you look at the aggregate euro zone deficit, euro zone debt, those numbers are certainly better. China is certainly -- the numbers have improved lately, and you have political stability back now that the new team is in place. So the volatility or the instability factors that are outside have reduced overtime. The real threat that we have at the moment is really here, with us, and that can be addressed.

CROWLEY: But when you look at -- I understood that European banks have sort of downsized or downgraded what they thought would be growth. You've got more than 11 percent unemployment in the euro zone, which is a good deal higher than here. Are those things threats to the U.S. economy, or do you think the U.S. economy now is destabilizing, or has the potential to destabilize the world economy?

LAGARDE: I think the U.S. economy, because it is a relatively closed economy, because it is large, because it trades with itself, and with its immediate neighbors, is less vulnerable to what happens outside, for instance in Europe. I'm not saying that there would be no consequences out of a crisis that would happen in Europe, but the consequences would be relatively minor. So it is more exposed to its own difficulties and to its own issues, than to what happens elsewhere in the world, because it is such a large player.

CROWLEY: So we're our own 5,000 pound gorilla, really, in the living room.

LAGARDE: We can be our best friends or our own best enemy.

CROWLEY: And let me just ask you as a final question, January 2nd arrives, no deal, what will we notice first?

LAGARDE: Lack of confidence. Markets I think would react very quickly.

CROWLEY: And it would result in? LAGARDE: And it would react in the stock market really taking a hit. But I would say that it will depend on what's on the horizon. If what's on the horizon is a bigger, better, comprehensive deal that addresses both the short-term issue of the fiscal cliff, the debt ceiling, and the long-term deficit and debt levels, then that would be different.

CROWLEY: So that comprehensive plan, actually, even if it's a little late, would, you think, would be better than some sort of, OK, let's the middle class keep their tax cuts and we'll work out the rest later? LAGARDE: Better a comprehensive fix than a quick fix, yes.

CROWLEY: Thank you so much for joining us. I appreciate it.

LAGARDE: Pleasure.

(END VIDEOTAPE)

CROWLEY: When we return, the perils of doing nothing.

(BEGIN VIDEO CLIP)

BOEHNER: Reports indicate that the president has adopted a deliberate strategy to slow-walk our economy right to the edge of the fiscal cliff.

PELOSI: This is the same Republican leadership that had the House and Senate in session barely a day, barely a full day this week.

(END VIDEO CLIP)

(COMMERCIAL BREAK)

CROWLEY: A pretty overwhelming consensus holds that some way, some how, over the next 23 days, Washington will find a way to avoid the fiscal cliff, and then there are those disconcerting moments.

(BEGIN VIDEO CLIP)

GEITHNER: There's not going to be an agreement without rates going up.

GRAHAM: I think we're going over the cliff.

PELOSI: If there's no agreement, we go over the cliff.

(END VIDEO CLIP)

CROWLEY: So just in case Washington's consensus is wrong, and there's no deal, income tax rates will go up. A typical family of four will pay about $2,000 more a year. The Social Security tax rate jumps 2 percent. The average worker will pay $1,000 more annually.

CROWLEY: Benefits for the long-term unemployed expire, about 2 million people could lose their benefits.

Most defense programs would be cut by about 10 percent. Non- defense, discretionary spending, things like education, air travel safety, and food inspections, would be cut about 8 percent.

The CBO warns no deal could send the economy back into recession, others argue it would rough in the short run, but the economy might prosper in the long return, and nearly everyone, including what would surely be a very cranky public, thinks the Republicans will get the blame. The facts, the politics, and the future of the fiscal cliff next, with CNN's senior congressional correspondent Dana Bash, Mark Zandi of Moody's Analytics, Stephen Moore of The Wall Street Journal, and Jackie Calmes of The New York Times.

(COMMERCIAL BREAK)

CROWLEY: Joining me around the table, CNN senior congressional correspondent Dana Bash; Moody's Analytics chief economist Mark Zandi, and you have a new book out, Mark, titled "Paying the Price," but I bet you know that; Stephen Moore of The Wall Street Journal; and Jackie Calmes of The New York Times. Thank you all for joining us.

Let's just ask you two, first of all, to kind of set the stage for, will it be Armageddon if we go off the fiscal cliff? Should we all start hoarding gold? I mean, honestly, you get such differing opinions about what would happen if we fall off the fiscal cliff.

MARK ZANDI, CHIEF ECONOMIST, MOODY'S ANALYTICS: Well, January 1st, no, no big deal, particularly if the Treasury decides to freeze withholding schedules and no one's tax rates actually go up. But by the end of January, things start to get uncomfortable, by the beginning of February, they get very uncomfortable.

By the end of February, of course, we have got the debt ceiling, and that would be cataclysmic, we would be in recession.

CROWLEY: Now I ask this because this does seem to put a little more time on the plate of Congress, which tends to expand the time that you give us.

STEPHEN MOORE, THE WALL STREET JOURNAL: Well, look, I think you have got very different ideological views of what drives the economy. For example, Mark and I probably disagree a lot on this. I think actually raising the tax rates on businesses and investors, I think that is harmful for the economy. I think it would cause a recession. I actually think the spending cuts would be positive for the economy. And so the Democrats believe exactly the opposite of that.

And so this is a dispute over very big ideas. This is not a small dispute. This is a dispute about the future of our federal budget and how we are going to operate in Washington.

CROWLEY: And so, as we said earlier, there is this consensus that, oh, you know, they will get something, it's the Congress, you know. Is that consensus beginning to waver?

JACKIE CALMES, WHITE HOUSE CORRESPONDENT, THE NEW YORK TIMES: I think, you know, it depends on who I talk to, really. But I do think there is a movement towards your previous guest, Tom Cole, when he, if you -- I think it has been a couple of weeks now, said -- well, it was leaked, what he said, but when he said, you know, the Republicans really ought to think about just declaring victory by going along with the president and Senate Democrats, and taking the 98 percent of the tax cuts they all agree on for everybody below $250,000, and then just work next year on tax reform and see if they can't get the top rates back down again.

And it's hard to think that that's not going to be where they end up. So why not make it clean instead of ugly?

DANA BASH, CNN SENIOR CONGRESSIONAL CORRESPONDENT: I think that it is true that many Republicans are saying privately what Tom Cole said publicly on the show, that they believe that the politically expedient and right thing to do right now is just to cut their losses, agree to the tax rates going up for the most wealthy, and really try for significant tax reform so that 39.6 percent is going to be moot, because if you reform the tax code, it won't matter.

However, there is a very, very real fear among House Republicans about getting primaried. There are some groups, Club for Growth, and others, who, you know, will be absolutely after these Republicans, saying, you broke a pledge, you voted for a tax increase, and there are lots of Republicans out there in various districts waiting in the wings to vote against them.

(CROSSTALK)

CROWLEY: But doesn't it get mitigated if they do get tax reform?

MOORE: Well, here is the point, I actually think solving the short-term tax issue is not that hard. I think that what Tom Cole talked about, that is probably going to happen. The president is probably going to get his way on raising those tax rates.

But, you know, there is another half of this, which is, what are we going to do about the spending side? And as you know, all of those spending cuts are supposed to automatically take place on January 1st. I don't see the Republicans just walking away and saying, OK, we won't do those spending cuts. So that's where I think you might even get more gridlock. And what do we do about bringing that spending down?

CROWLEY: And let me -- because you brought up spending cuts, let me read you something that Emanuel Cleaver said on Friday morning actually. He said: "I think most rational people, including Democrats, realize that we have got to make some cuts and or deal with Medicare, but, you know, let's have some means testing."

ZANDI: Yes. And I think that's -- there is general agreement about this. I mean, Governor Romney ran on the...

(CROSSTALK)

CROWLEY: So there are some cuts.

ZANDI: And actually, if you look at President Obama's proposal for Medicare cuts, what he put forward a week ago or so, there is means testing in that. So I think that's an area of common ground.

And I think we need both tax revenue, and we need much more than tax reform will get us. We also need higher tax rates. But we also need spending cuts. And it has to be balanced. And I actually think -- I'm optimistic about this, it feels to me like they're coming to a middle ground here on both the tax revenue side and the spending side.

MOORE: I don't see that. I mean, right now when I listen to the Democrats, what they say is, no cuts in Medicare, no cuts in Medicaid, no cuts in Social Security. In fact, a lot of the Democrats say, oh, Social Security, that's not even a problem. Wait a minute, I mean, you've got trillions of dollars...

(CROSSTALK)

CROWLEY: Except for they kind of don't matter at this point, right? All of the peanut gallery, if you will...

BASH: They don't matter, but it is going to be -- you know, we talk so much about the politics within the Republican Party, and within the Republican Caucus in the House, but talk to senior Democrats and they will tell you, even rank and file Democrats, Emanuel Cleaver is important because he is maybe the Tom Cole of the left in that it's going to very be hard for them to walk in at the end of the day to this Democratic Caucus and saying, you're going to have to give on raising the eligibility age for Medicare.

That is not easy for Democrats to swallow.

CROWLEY: But you know that the deals that were made, few as they were, recently, have not been from the right and the left. You know, the speaker has lost his right, Nancy Pelosi, the minority leader, has lost her left, and they come together here. That's doable, yes?

CALMES: I think so. I think, you know, there has got to be a lot of people, Republicans, who wish they had taken the deal -- in seeing how the election came out that taking the deal in the summer of 2011 where President Obama reluctantly indicated that he would be for changing the cost of living formula for Social Security, and for raising the retirement age very slowly for Medicare.

And because those things, you know, are going to be harder to get now for Democrats, because the left has mobilized, liberal groups are really active. They...

(CROSSTALK)

CROWLEY: They feel responsible for having elected the president and...

CALMES: ... in years.

But I think the Democrats recognize that entitlement spending has got to be curbed.

ZANDI: I think the thing for Democrats that's really important is they don't want to change Medicare and Medicaid and Social Security structurally. You know, they don't want to block grant Medicaid, they don't want to voucherize Medicare, so -- or privatize Social Security.

So if you are not going to do those kinds of things, and you're going to make the arithmetic work, you have to do things like allow the retirement age on Medicare to go up to 67 or adopt a new CPI for Social Security. And if you do that, and you do the arithmetic, you can get to numbers that work in the context of a budget...

(CROSSTALK)

MOORE: Let me tell you where I think Republicans are in their thinking. And there is a lot of -- even within the party, I think Republicans are saying, look, the president is probably going to get his way on these tax increases on the rich.

So let's say he gets that. You know, that raises maybe $70 billion, $80 billion a year, I don't think they're going to raise even that much from that. But then the Republicans say, you know, maybe we'll just give the president that, go into 2013, and say, OK, Mr. President, what's your second act? You still have a trillion dollar deficit. We have not solved the problem.

And then to say you have got to come forward with a budget, you've got to come forward with some of these entitlement cuts. So I think the president may have a short-term victory here, but then going into 2013, he has still got a big problem on his hands.

ZANDI: But you know what, I don't think they do a deal that isn't a big deal. It has to be all-encompassing. It has to be revenue. It has to be spending. The arithmetic has to work. It also -- it has to raise the debt ceiling.

MOORE: But you need growth...

CROWLEY: but don't you need a deal, first, that promises a big deal? I mean, you can't get a big deal by the 30th of this month.

ZANDI: No, but a framework. You know, you can't cross the Ts and dot the Is, but we need a here are the numbers, here are the numbers that get you to fiscal sustainability 10 years from now.

MOORE: We may be here until December 31st.

CALMES: We may be here? We will be here?

MOORE: I hate to say it.

(CROSSTALK) CROWLEY: Hang on just a second, we have got to take a quick break. And more with our panel after the break. And later, explaining the fiscal cliff from TV's most famous billionaire.

(BEGIN VIDEO CLIP)

MONTGOMERY BURNS, SIMPSON'S CHARACTER: Think of the economy as a car and the rich man as the driver. If you don't give the drive all the money, he'll drive you over the cliff. It's just common sense.

(END VIDEO CLIP)

(COMMERCIAL BREAK) CROWLEY: Time for a check of the headlines. In the last unsettled House race of the 2012 election, Louisiana Republican congressman and Boehner ally Charles Boustany defeated fellow incumbent Tea Party Republican Jeff Landry in a runoff. As we reported on last week's program, redistricting forced the runoff race between the two Republican lawmakers when neither received 50 percent of the vote in November.

President Obama is taking his message of middle class tax cuts back on the road. He heads to Michigan tomorrow where he'll tour a Detroit diesel engine plant. The plant is a UAW shop. And the president's visit is expected to pull him into the debate over Michigan's right to work legislation that limits union ability to organize workers.

Have you ever fallen asleep by watching TV only to be blasted awake by a loud ad?

(BEGIN VIDEO CLIP)

UNIDENTIFIED MALE: Wow, that's a low price!

UNIDENTIFIED MALE: I know!

(END VIDEO CLIP)

CROWLEY: Starting Thursday, the Commercial Advertisement Loudness Mitigation Act, better known as CALM, goes into effect. The law which congress passed in 2010 bans ads from being louder than the TV program they're interrupting.

We'll talk about that presidential trip to Michigan and what he'll say about the union showdown there after these not so loud commercials.

(COMMERCIAL BREAK)

CROWLEY: We are back with Dana Bash, Mark Zandi, Steven Moore, and Jackie Calmes.

Michigan in this sort of just (inaudible), at least in terms of the political times right now, the legislature passes a right to work law in Michigan kind of, at least one of the cradles of union. And it would mean that you wouldn't have to join a union. You would not have to pay union dues. How did this happen?

MOORE: Boy, it just came out of the blue and under the radar screen. And Republicans got their ducks together, they control the House and the Senate, and the governorship in Michigan, even though it's a state that Barack Obama carried. And they got this through in the House and Senate. It's a big deal, it's a poison pill for the unions. They hate right to work.

I think it's a smart move for Michigan economically, a lot of new businesses, when they're looking at building new factories or building new plants, they won't even consider states that are not right to work. I mean, so much of the growth in this country is in the right to work states.

So I think economically, this, if it passes, and it will probably be Tuesday or Wednesday when we get a final vote on this, I think it puts Michigan, a state with a 10, 11 percent unemployment rate, back on the economic map.

CROWLEY: And Mark, and one of the highest union membership states in the country, did a lot to help reelect President Obama. Is Steven correct that this actually, economically, makes sense, even if politically it seems kind of out of step?

ZANDI: Well, this is a tough one. I go back and forth on this one. I mean, on the downside, it means slower wages -- slower growth than otherwise would have been the case. I mean, that's why businesses want this. But I think Steven is right, it will lead to more jobs. I mean, Michigan is at a disadvantage against some of the right to work states that are just south of it. And it's lost a lot of auto jobs to places like Kentucky and Tennessee, even Indiana.

ZANDI: And this probably will make it more balanced.

But, you know, again, it's going to weigh on wages. That's the bottom line here.

CALMES: Right, and the unions in Michigan have given up quite a bit with the auto companies through the bailout period in 2009 and forward, so, you know, they've been -- it's been very much a cooperative relationship that's developed between the -- the management and labor, and the auto companies are neutral on this legislation.

BASH: And, really, remember, during the bailout, I mean, the big sticking point was getting the unions to bend on their retirement, on their pensions.

MOORE: But it also, maybe, means that Michigan may be moving beyond being an auto state. You know, look, let's face...

(CROSSTALK)

MOORE: And so, you know, they want to be a technology center, a financial center. And for those industries, being right-to-work is an asset.

ZANDI: But it's also important to point out that the unions have given up a lot. And the cost structure has come down significantly. If you look at job growth in Michigan, it's actually been very strong in the economic recovery, in part because of cost structures, a lot of those.

CROWLEY: Let me -- I want to move you just to the Jim DeMint departure. I know I'm taking you out of your comfort zones little here -- but not you all, so feel -- everybody feel free to chime in. What caught my attention was a column today by Ross Douthat in the New York Times, who wrote "This chapter, the DeMint chapter, the Tea Party chapter, call it what you will, was probably a necessary stage for the American right. It's normal for defeated parties and movements to turn inward for a period of ideological retrenchment before new thinking takes hold."

Now, his -- the whole gist of this column is Jim DeMint's leaving because time is up for the Tea Party.

BASH: I don't know if that's true. I think that what he has said is that he does feel like he was successful in getting about half a dozen Tea Party-backed Republicans elected to the senate that would not have been there if not for him.

It is also true that he had some -- he supported some candidates who did not win. And you can bet that Mitch McConnell, the Senate Republican leader, was not unhappy when he heard that Jim DeMint was leaving...

(LAUGHTER)

... because he feels that he is not majority leader because of DeMint is there. There's a lot of "ding dong, the witch is dead" going on in the Republican Caucus right now.

CALMES: Yeah, and enough of the candidates that Jim DeMint backed in states that were red states and that Republicans should have won -- there's a number of Republicans, up to Mitch McConnell, the Senate Republican leader, who believed they would be in the majority today if not for some of the candidates that they pushed.

MOORE: You know, I think, on the right, there's a little too much demoralization. You know, everybody's, like, so depressed on the conservative side, very similar to what it was like after the 2004 election when George W. Bush was elected and liberal Democrats were saying, oh, my gosh, we're never gonna win another election, and of course then they won in 2006 and '08.

And I always caution, you know, people who are conservative like me, look, Republicans can make a comeback. They can win in 2014 and '16. You shouldn't abandon your basic principles. In my opinion, that would be the worst thing to do.

CROWLEY: Mark, you get the final word in the final 15 seconds. The Tea Party basically said, look, we're for smaller government, less government interference. Are those sorts of ideas fading?

ZANDI: No. I think that's part of the American experience. I mean, we have this constant historical battle between Thomas Jefferson and Alexander Hamilton going all the way back to that point. How much government do we want or don't want?And I think this is just part of that battle.

But on an optimistic note, we always find a way to resolve this and come out with the right solution, and I think we'll find that to be the case here, too.

CROWLEY: Dana, Mark, Steven, Jackie, thank you guys so much for joining me. Congress is busy at work and -- just not on the fiscal cliff.

(COMMERCIAL BREAK)

CROWLEY: We got fascinated by words and definitions this week, prompted by the fine folks at Merriam-Webster Dictionary, who released their list of the most looked-up words of the year.

Cue the balloon drop. Sharing the top spot this year, "socialism" and "capitalism."

"Socialism," the editors wrote, "saw its largest lookup spikes during coverage of health care but also saw peaks in the days following both conventions and each of the presidential debates."

"Capitalism, although looked up somewhat less often, rode the same waves of interest."

We're gonna bet that, if there was a post-election word list, "fiscal cliff" would be a contender. We know that because the discussion of the wonkiest, most complicated package of tax hikes, spending cuts and budget maneuvering has surfaced in pop culture.

Cue Mr. Burns.

(BEGIN VIDEO CLIP)

VOICE ACTOR PORTRAYING "MR. BURNS" ON "THE SIMPSONS": Think of the economy as a car and the rich man as the driver. If you don't give the driver all of the money, he'll drive you over a cliff. It's just common sense.

(END VIDEO CLIP)

CROWLEY: In pop culture, need we add the definition of words is often sacrificed for comedic value.

And, finally, is there a list of words stricken from the dictionary in 2012?

(UNKNOWN): Senate 2367, an act to strike the word "lunatic" from federal law and for other purposes.

CROWLEY: We're unclear from what other purposes the word "lunatic" would be struck, nor are we certain how you go about the striking, but you heard that right, a bill to remove the word "lunatic" from every federal law ever written.

Cue Congressman Scott.

(BEGIN VIDEO CLIP)

REP. ROBERT SCOTT, D-VA.: The term "lunatic" holds a place in antiquity and should no longer have a prominent place in our U.S. code.

(END VIDEO CLIP)

CROWLEY: Supportive mental health advocates argue the word "lunatic" is pejorative. Bipartisanship reigned for a moment. Strike lunatic.

(BEGIN VIDEO CLIP)

(UNKNOWN): On this vote, the yeas 398; the nays are one, two- thirds of those being in the affirmative, the rules are that the bill is passed.

(END VIDEO CLIP)

CROWLEY: Here's the one.

(BEGIN VIDEO CLIP)

REP. LOUIS GOHMERT, R-TEXAS: Not only should we not use the term "lunatic" -- not eliminate the term "lunatic," but we should also use the term to identify those who want to continue doing business as usual around this town.

(END VIDEO CLIP)

CROWLEY: We have no words to add to this story. Thank you for watching "State of the Union." I'm Candy Crowley in Washington. Head to cnn.com/sotu for analysis and extras. If you missed any part of today's show, find us on iTunes. Just search "State of the Union."