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In the Arena

Tensions Rise in Washington over Debt Ceiling; Time for a Truce in Washington?; The Murdoch Scandal

Aired July 14, 2011 - 20:00   ET


TOM FOREMAN, CNN ANCHOR: Good evening. I'm Tom Foreman. Welcome to the program.

Another day older, deeper in debt. That's what we're looking at tonight in Washington, folks. I think we can call this a crisis. Two groups of people who simply cannot find common ground. Republicans and Democrats led by President Obama have made, as far as we can tell, not an ounce of progress toward a deal to cut the deficit and raise the debt ceiling.

Meanwhile, the specter of default comes ever closer. Frankly, it's the tone of these debates that has a lot of people scared and this is a guy who's scaring a lot of folks tonight.

He's Congressman Joe Walsh, Republican from Illinois, a freshman backed by the Tea Party. He's been known to say blunt things when criticizing President Obama. But these comments might just take the cake.

I want to show you a video Congressman Walsh shot and posted to his Web site yesterday.


REP. JOE WALSH (R), ILLINOIS: President Obama, quit lying. You know darn well that if August 2nd comes and goes, there's plenty of money to pay off our debt and cover our -- all of our Social Security obligations.

I know you have a willing media that protects everything you say and do. But have you no shame, sir? In three short years, you've bankrupted this country and destroyed job creation. You're either in over your head, you don't understand what makes this country great, or you're hell-bent in turning us into some European big government wasteland.

You spent money like a drunken sailor for three years and now you tell us it's time to get serious about spending?


FOREMAN: A drunken sailor? I'll guarantee you, this is not the kind of talk that leads to compromise in Washington. I'll talk to Congressman Walsh in just a moment and try to sort through some of the things that are going wrong down there. But first, here's a look at the other stories I'm looking into tonight.


FOREMAN: Tax the rich. The Democrats say it's one way out of the budget mess. But when a meal in Manhattan can cost the same as a used car in Kentucky, who exactly are the rich?

And Michele Bachmann for president? Some people thought it was a joke. Well, the latest poll has her leading in Iowa. And in New Hampshire she's in second place and gaining. Who's laughing now?

Then --


FOREMAN: Harry Potter fades to black. But one man always knew how the story would end. Barry Cunningham was Harry's first publisher and kept his deepest secrets all these years.


FOREMAN: A lot coming up tonight.

Now back to our top story. The tone in Washington around these talks is absolutely poisonous and it's not being helped by a congressman calling the president a liar. And that congressman is here tonight.

Joe Walsh. He's joining us, he's in Washington.

Congressman, thanks for being here. And let me just ask you right up front. Is that appropriate for you to call the president a liar? Is it appropriate for any of us to call the president of our country that?

WALSH: You know what, these are important times. We're debating big, passionate issues. When my president, when your president, goes on TV and says that he's going to have to start pulling Social Security on -- checks on August 3rd, he's not being truthful with the American people.

So, you know, look. I am tired of politicians all over the place who don't talk straight and just say what they believe. Let's cut through all the crud and try to solve issues here. Let's quit being political. And I think that's all this president has been doing.

FOREMAN: You think the talk about Social Security was essentially a scare tactic?

WALSH: Absolutely. We know -- and this is -- this is what they began a few months ago when they began talking about this notion of default. They know, we know, there are plenty of government revenues to service your debt, to service our debt when August 2nd comes and goes, if it comes and goes.

Same thing with Social Security checks. And my fear is that he's going to continue down this line and try to scare military families. And try to scare families who have student loans. And just continue to go down the line instead of getting serious with Republicans, rolling up his sleeve, and doing something to change the way politicians from both parties in this town have been spending money for years.

FOREMAN: Congressman, I want you to explain something to me, though. You just said just a minute ago we all know that they have this money. I don't know that and I've been looking at this for days and days, listening to economists. I will grant you in a heartbeat it's incredibly difficult to sort through all of this.

I don't know in a definitive sense they don't have the money, but I don't know as you're saying that they do have the money. How do you know that?

WALSH: Look, there are government revenues to service our debt for the rest of this fiscal year. There are government revenues to service Social Security checks, military benefits, all of that, eventually.

And none of us, none of us want to get to this point. Eventually you will get to a point where government will run out of money. We don't want to get there. But they keep making this inference that come August 2nd, the lights in the country are going to go out. They're doing that to scare the American people.

We can survive a week or two or three. And you know what, we have to. We have to, to try to get real structural reform in how this town spends money.

FOREMAN: OK, OK, I think that's good clarity in the sense that I agree, it's not going to be like turning a switch when this happens. But you're not saying that there's some infinite pool out there that's going to work.

WALSH: No, no, no, no. We know that. I'm just saying they point toward August 2nd as -- and the president even said it. Come August 3rd, I may have to pull Social Security checks. He knows that's not true.

Now, four, six, eight months down the road we're going to reach a point where we have to do something. But nobody wants to get to that point.

FOREMAN: So even when you hear -- the Bipartisan Policy Center came out and they said that the government is scheduled to pay out $307 billion in August but will take in only $172 billion. You're saying despite those numbers, there's still some pad to work with for the moment while we sort this out?

WALSH: Absolutely. And they know that. And so instead of trying to scare Republicans into doing something by August 2nd, and indirectly scare the American people, they ought to just get really serious and let's come up with real strong reform so that we don't get to this place again.

FOREMAN: All right. You're getting to the point that I want to get to now. The Tea Party and some other people, who are very, very fiscally conservative right now, are trying to take a hard line. That's your job, that's your important thing to do, I understand that.

But what are you willing to compromise on? Because certainly we know in a country like this nobody gets to have their whole way because there are 300 million of us here, not everybody agrees.

WALSH: No, I think -- I think what most of us freshmen who were sent to Washington believe we have to do is change structurally the way this town does business. And so it's less the size of the cuts. It's putting in place some sort of reform that will say, we won't get here again.

The first piece of legislation I've introduced as a congressman was a balanced budget amendment. It now is part of a real movement now in the House called cut, cap and balance. To get some cuts next year, to cap spending, but to formally amend the Constitution so that politicians from both parties can't spend more than they take in in a year.

I think that being able to do -- achieve a real strong reform like that is something most American people really want. Eighty percent of the American population supports a balanced budget amendment. The president should support it.

FOREMAN: Do you think you have any real chance of getting there, though, in this kind of environment?


FOREMAN: Because I have to tell you, when any group in Washington, you know, draws a line in the sand and says, by golly, this is not going to happen. You know, very often talks stop. Nothing gets done. The very thing that makes people furious in this country happens. The government simply ceases to function.

WALSH: No, I hear you. But if it's a crude analogy, I apologize. The analogy I use with this president is in a way he's acted like a teenager whose parents left for the weekend, he had a big blowout party and trashed this house, and now he's stomping his feet because his little sister or the rest of us won't pick up after him.

He has gone on a spending binge for three years. If the American people really liked what he'd done, I wouldn't be standing here. They wouldn't have sent us to Washington to stop what he's done. So this is really one of those moments in time where I think the American people are ahead of politicians.

They don't want a weak compromise. They want this city to do something outside the box because the consequences are dire. Are just dire for future generations if we don't take this moment and change this city.

FOREMAN: Give me in a nutshell here. You said not a weak compromise. But you are willing to talk about compromise.

WALSH: Absolutely, but the compromise has to include structural reform. We have got to force politicians to balance their books every year. So we've got to -- we're got to pass a balanced budget amendment out of both houses. And I think that is eminently doable because this situation we're in right now is so dire.

FOREMAN: Can you get any support from your followers, people who think the way you do, if you say, look, we can move a step closer to that discussion but we cannot get it passed right now?

WALSH: No, I think we can get it passed. And I think we've got to do everything we can these next two to three weeks to try to get it passed. And this president has to lead. He's done very little leading. He has been a political animal for the six months.

If he wants to avoid something happening on August 2nd, he's got to get Democrats to support a balanced budget amendment. And you know what, a lot of them -- a lot of them do. They can be nudged by this president. He's still got some power and some influence with that party.

FOREMAN: I'll ask one very direct question which may not be a comfortable one. But you won your seat by just a hair last fall. In this environment and with the stance you're taking do you think you're going to remain in Congress?

WALSH: No, you know what, here's my -- it's actually, it's a great question. And it's an easy answer. And I say it often. I am not driven by my next election. I came here like a lot of freshmen did, on a mission, respectfully, to stop this president, who I think is destroying this country, and to stop all of this government spending, which is bankrupting our kids and our grandkids.

I want to -- that's the mission I'm on. And as much as I can do to do that, that's what I'm going to try to do. And if it means I don't get sent back to Washington, that's not what's guiding my thinking here.

FOREMAN: Well, and I know there are voters who feel very much the same way.

Congressman Joe Walsh, thanks for being here.

WALSH: Great for being with you.

FOREMAN: My next guest has been a top adviser to multiple presidents and was inside the White House for years, CNN senior political analyst David Gergen.

David, we only have a moment before we go to the break. We're going to talk with your much more in the next segment. But let me ask you before we do that, when you hear the kind of comments Joe Walsh makes, what do you think?

DAVID GERGEN, CNN SENIOR POLITICAL ANALYST: I shudder. It's bad for the country. This country has always shown a great respect for the office of the presidency. And we accord to the person in it a certain degree of respect.

A year and a half ago, when President Obama gave his State of the Union message, you'll recall there was the congressman from the south who -- Joe Wilson, who said "You lie, Mr. President." And he was chastised heavily for that.

And today here Joe Walsh, you know, a freshman, is calling the president a liar. I think it's terribly unfortunate. If we want to command respect within the world, if we want our presidents to be able to lead, one day soon or maybe sooner rather than later, who knows, there may be a Republican back in the White House.

Do you really want, Mr. Walsh, for that Republican to be trashed in a personal way? I think both sides have an interest in trying to find now some healing and find a truce.

FOREMAN: And you are waving the flag of truce outside the White House. We want to get to that in just a moment. Stay right there. We're going to have more on what's starting to feel like a food fight in Washington and how to get these grownups all talking quietly at the table again.

David has some very interesting ideas on an actual possible solution when we come back.


FOREMAN: Well, as we've been talking tensions are running very high in Washington tonight. And compromise about whether or how to raise the debt ceiling is just a distant dream, it seems. If you just listen to Congressman Joe Walsh you know what I mean.

Is this any way to run a country?

I'm back with senior CNN political analyst David Gergen.

And David, I was fascinated by your column this afternoon breaking down the way that a truce could be reached here.

Let me ask you first. You have people on the left and on right who have swords drawn who are saying to your people, do not get weak now, fight it to the end. You are saying that in and of itself is not going to work.

GERGEN: A fight to the finish among the negotiators now is a fight that will really damage the country. The most important thing we need now, Tom, is some sane, cool heads to realize that default is just around the corner. And unless we avert a default on our financial obligations we're going to throw this country into very deep danger of a second recession. And just today the Chinese sent a strong warning, don't default. And they're holding $1 trillion worth of our assets. So, from my point of view, it's time to have -- to find a truce. To have a ceasefire in place, if you would.

I think the elements are there. And I'd be happy to talk about that. But I think the critical thing is we have to avert a default.

FOREMAN: Let's go through some of the ideas that you had, though, David, because I found this fascinating.


FOREMAN: Number one, you wrote, Democrats need to agree to accept one possible solution. Democrats agree to accept some $1.5 trillion in spending cuts, and they give up on the idea of significant tax increases. This is the first one. Why is that good?

GERGEN: Right, right. Well, the Democrats have been arguing all along, we will do the spending cuts but we demand tax increases as part of the package. Now the spending cuts that have emerged so far in the Biden talks and now in the White House are at about the level of $1.5 trillion.

That's not enough for the Republicans. But it would be a huge advance over where we are as a country if the Democrats would say, OK, we do agree to those 1.5. Then we'll give up the demand for the tax increases. But in return for that -- this is very, very important -- the Republicans would agree to extend the debt ceiling. They would agree to extend the debt ceiling through the 2012 elections, as president Obama I think with justification is asking.

And that Republicans would give up their demands that spending cuts equal the size of the increase in the debt ceiling. In other words, you've got to increase the debt ceiling about $2.5 trillion in order to get through the elections and not have to go through this charade yet again or even twice before the elections. It costs about 2.5.

Well, they're never going to get to 2.5 in spending cuts. The Republicans want to say, OK, drop the dollar-for-dollar demand. I think Boehner might be willing to do that ultimately. And we will agree to this. Both sides agree then to do some additional adjustments on, say, some fees and services kind of thing, it will raise a little money. But don't take that money and put it into tax hikes. Take that money and put it into payroll tax cuts.

FOREMAN: Let me --

GERGEN: If he did that kind of package, the country would be better off.

FOREMAN: Let me make sure I'm keeping this clear here. So you went through the first one, the Democrats agreeing to the cuts --

GERGEN: Sure. FOREMAN: -- and giving up on tax increases.

GERGEN: Correct.

FOREMAN: Your second point is Republicans agree to lift the debt limit by about $2.5 trillion. And they give up on the idea of saying you must cut spending to match it. Your third point you just hinted at that.

GERGEN: Yes. Exactly.

FOREMAN: Both sides agree to close some tax loopholes and raise fees for some government services to make this all revenue-neutral.

There's kind of no winner, no loser, but it just moves forward and --


FOREMAN: You're getting past the heat of the 2012 elections.

GERGEN: Yes, the money you'll get -- the money you get from the fees and the services you put into payroll tax cuts which is something the president wants, something the Republicans really want, put some more spark back into the economy. We've got a very limp economy as you well know.

But the critical thing is that both sides get something and they give something up. People defend their principles. The Republicans defend the principle of no tax hikes. The Democrats defend the principle of no entitlement reform. Don't do this on the back of the seniors and Medicare and Social Security.

Both get what they're looking for there. But we get to an agreement that gets a truce that ends these kind of poisonous conversations that have been occurring in the White House. You know, and it gets us past this default.

Tom, that does not solve the underlying problem facing the country. The debt crisis which is building up, the huge debts that are building up still have to be dealt with after you get past default. So do the jobs issues. Those are both crises that are coming at us very fast. But we must -- we will never even get there if we don't get past this default issue.

FOREMAN: And your last point was that both sides have to agree to this, a new set of negotiators dive in and try to come up with long-term credible things --

GERGEN: Yes. Yes, dive in and let's deal with the long-term.

FOREMAN: But let me ask you, David.

GERGEN: I can't emphasize enough. We're on the edge right now.

FOREMAN: Why is this, though, your solution here? Because you said it really doesn't address all this. Why isn't this another version of kicking the can down the road?

GERGEN: It is a version of kicking the can down the road. And you know, when we started this process I thought it was the least desirable alternative. But if the -- but if the choice is to go into default versus kicking the can down the road, I think that's no choice. You have to kick the can down the road and keep going on this.

But here's the other thing, Tom. The McConnell plan which he has proposed as plan B has -- you know, he essentially lets the president raise the debt ceiling but he doesn't get any spending cuts out of this. It doesn't give us any spending cuts. My feeling is, go ahead and get the 1.5 now. Take it. You know, take it and run with it. That would be historic to get spending cuts of $1.5 trillion.

FOREMAN: Well, David Gergen, I really, I find this a very intriguing plan. It will be interesting to see if people respond to it that way. And, you know, the simple truth is, I think the fact that it's going to make everyone unhappy in a way is probably one of the best signs that it represents compromise.

David, as always, good talking to you. Thanks for being here.

GERGEN: Well, Tom, it's terrific talking to you. Thank you so much.

FOREMAN: All right. Thanks for being here.

Up next, the phone hacking scandal in Britain has made its way here. We've been talking about it. And now the FBI has announced it will open a probe into allegations that U.S. citizens' phones were hacked. More on this latest development when we come back.


FOREMAN: "In Depth" tonight, the Murdoch scandal. Here are the latest developments.

The FBI has announced plans to launch an investigation that News Corp reporters hacked into phone records of the victims of the 9/11 attacks.

In an abrupt turnaround, both Rupert and James Murdoch have now agreed to testify before the British parliament on Tuesday.

The former editor of "The News of the World" was arrested in west London this morning, the ninth arrest in this scandal so far.

And I'm joined now by John F. Burns. He is chief of the "New York Times" London bureau, and he's doing some fascinating reporting on this story.

John, thanks for joining us. What do you make of the FBI now reviewing this whole set of allegations? It's not an investigation as such yet. But they are beginning to look at it. What do you think they're looking for? JOHN F. BURNS, NEW YORK TIMES LONDON BUREAU CHIEF: Well, it was absolutely inevitable from the first reports -- reports only, I've not seen any evidence or names to support this -- that this phone hacking crossed the Atlantic.

The reports here are that the allegations or suspicions focus on British journalists or at least journalists working for "The News of the World," the London tabloid, in the United States, that they tapped into the phones of, they say, victims of 9/11.

I think it's much more likely, in practical terms, to have been the families of the victims of 9/11. Of course, this would be -- would take the whole corporation, I think, over the abyss if it were true.

We don't know that it is true. But it was certain that this was going to be investigated after prominent senators in the United States -- Senator Menendez of New Jersey, Senator Boxer of California -- began to look into this. And of course, beyond that you have the Foreign Corrupt Practices Act going back to the Lockheed scandal in Japan in the 1970s which I'm old enough to remember, which if I don't misstate it your lawyers who are listening to this, forgive me, makes it a criminal offense in the United States for a United States corporation that commits criminal offenses abroad.

In other words, if you bribe the authorities in wherever, Chad, to buy your airplanes, if you're a U.S. corporation, that's an offense in the United States. So it has been evident from the start of this that the FCPA, as they call it, could come into play here. And that would have enormously serious repercussions because, as I understand it, the bulk of the business and the profits of News Corporation are in the United States and not here in Britain.

FOREMAN: Talk to me about this split in the Murdoch family between the father and son over this. How deep is this?

BURNS: Well, I think it's a story as old as time. You know. Crack open Shakespeare and you find this sort of thing. Murdoch is a larger-than-life character. He has achieved whatever we may think of what has happened here in Britain recently, and possibly as we now learn in the United States, possibly -- Rupert Murdoch has had a huge footprint, has made a huge difference, in fact, to the landscape of newspapers and television on both sides of the Atlantic. In fact, around much of the world.

James Murdoch is his son. And of course, these are very big boots to step into. And I have to say, from what I'd heard, it's no surprise that James Murdoch has not, it would seem, been fully equal to the task. Though I think one has to be cautious and say it will be some time before we know the full story here as to what he knew and didn't know and what he did and didn't do.

FOREMAN: James Murdoch seemed to be the real champion of this giant deal over there for BSkyB. And his father seems to be the one who say, no, we're not going to do that right now, we can't do it.

Is this deal -- to quote "The Princess Bride" -- all dead or only mostly dead?

BURNS: Well, the deal, had it not been sunk as I think it has been by the scandal, would have been very good indeed. This British broadcasting has revenues of something over six billion pounds I believe. That may be dollars, but in any event, a year, of which the profit is close to 1 billion pounds or dollars.

It's an awful lot of money. Compare that with the newspapers here that he owns which, you know, it's nickels and dimes. So the real future for News Corporation in the United States is probably in television.

And this deal would have been a very, very good one. It now seems to be beyond them. James Murdoch, we understand, has never really been very interested in newspapers where his father made his name and his initial fortune in newspapering and has printer's ink in his veins. So that's another difference between the two of them.

FOREMAN: I think are correct on all counts. John F. Burns, thanks so much for joining us from London.

Coming up, Michele Bachmann, front runner? Don't laugh. It's happening in Iowa and she's got tons of momentum in New Hampshire too. I'll ask our crack political panel, is Mitt Romney hearing footsteps behind him? And as importantly is President Obama?


FOREMAN: While the debt negotiators talk trash in Washington, the job of the president doesn't look all that attractive. Nevertheless, a lot of Republicans want it and right now the field appears to be energized by Michele Bachmann.

Look at this. In the most recent Iowa poll, the Tea Party favorite has pulled into the lead, topping Mitt Romney by 4 percent and in New Hampshire, a poll released today puts Bachmann in second place, trailing Romney by a lot, but gaining 11 points over just three months.

The mere mention of Michele Bachmann's name in the race once made party elites laugh out loud, but nobody is laughing now. Joining me with the latest on the Republican horse race is Steve Kornacki, news editor for and former Republican House Member Rick Lazio.

Gentlemen, thanks for coming in here. Steve, let me start with you. You raise an interesting point here. You said that maybe she's not a flash in the pan.

STEVE KORNACKI, NEWS EDITOR, SALON: Yes, I mean, my instinct all along has been similar to what I think a lot of people's instinct that, you know, these things happen. A few weeks ago there was this guy, Herman Cain who was getting all the attention, who's moving up in the polls, starting to raise money.

He's been completely eclipsed now by Michele Bachmann and she short of stolen his thunder, but I think she's a little different than him. I think she's a little different than a lot of the other flashes in the pan because she seems to have a much stronger, more obvious connection with the mood of the Republican Party base.

In ability to really communicate with what the Republican Party base is feeling in the year 2011. I think there's a lot of sort of resentment of President Obama. Very negative feelings toward the Democratic Party, towards what they perceive the Democratic Party to sort of represent.

I think that fuelled the Republican Party base the last two years. I think ability on Michele Bachmann's part to connect with that and I'm not sure when that sort of fades away.

FOREMAN: Rick, do you think that Michele is an inspiration for the party or distraction for the Republican Party?

RICK LAZIO (R), FORMER U.S. CONGRESSMAN: Well, it depends who you're talking to, part of the public, part of the Republican-voting base is obviously connecting with her, but let's keep this in perspective.

We're talking about 10 percent, 11 percent, 12 percent of the Republican voters right now. The clear front-runner is still Mitt Romney. He's still the guy who does the best head to head against President Obama. He's still the guy, the only Republican that really beats Obama among independents head to head.

He's the guy who's run once before. If the issue, in fact, which I think everybody believes, is jobs and the economy, the person who is best-suited I think to address those issues, who's almost from central casting in terms of dealing with it, a turnaround in terms of business, the winter Olympics, inherits a multi-billion dollar deficit in Massachusetts, turns it around, it's Romney.

So if you want to win, seems to me if you think it's about swing voters and independents then Romney's probably more attractive than she is right now. But you can't discount the fact that there's a lot of enthusiasm, she does tap into an emotional part of the Republican base.

FOREMAN: One of the things that I heard in New Hampshire from some very conservative voters that I found interesting, people who I think would like her, and perhaps do like her, many of them said, we want to hear from our candidates what you can to do win the independents because we know we can't win without them. It goes to what you said, Rick, the desire to win. Do you think that ultimately can take her off the table or do you think she really has a shot at it?

LAZIO: Yes, no, I think that's the best card to play if you're sort of the Republican establishment. I think one of the best things that could happen, if you're the Republican establishment, if you're a mitt Romney supporter and you see this sort of threat from Michele Bachmann.

Last week, you had some of the worst economic news yet for President Obama during his term, the unemployment rate going back up again, his job approval rating I saw this week now down. It tick down a few more points, possibly as a result of that.

I think the more vulnerable that Barack Obama looks later in this year as we get towards Christmas and New Year's, the more vulnerable he looks I think the easier it is to make that case to the base, that this is serious, this guy's at 42 percent job approval right now.

History says a president in this position can be beaten. We have to make sure to get the right one. The example I think of is the Democrats in 2004 when they finally decided, you know what, we've had Howard Dean as our front-runner for nine months, but he can't win.

FOREMAN: That model, they said the Howard Dean model is one worth looking at here, but let me ask about Michele Bachmann. I think it's interesting, one thing she has done here, positioned herself such that what you say, Mitt Romney's the better choice, or she's not serious -- every one of those spins into the story that says, you see how much I'm the right person for you because the whole establishment is against me.

LAZIO: Yes. She's obviously appealing to the populist strain within the party.

FOREMAN: Enough that she could win the nomination?

LAZIO: I think it's a difficult road for her, honestly. I think if you look past Iowa and perhaps a couple of other states that have traditionally selected the most conservative candidates that have been in the field, then the path to victory becomes challenging.

Could she do it? Is she up to the job? Is she a smart woman? Does she have charisma? She has those things. She's nobody's fool. It's not -- I don't think it's a flash in the pan as Steve would say. I think she's a real candidate.

I just think in terms of having the credentials, the background, the gravitas, having been there before, you know. I think the higher likelihood that you'll see missteps because of her inexperience on the stump. I think these are all real issues.

FOREMAN: Interestingly enough when you say the lack of experience, you haven't been, there the lack of gravitas, guess who that was said about? Barack Obama.


FOREMAN: And he's a guy who won.

KORNACKI: One other thing, you know, when I think about how logical a lot of the arguments you can make about electability are, I also think about the mood of the Republican base that I talked about earlier.

I think back to what happened last year in the midterm elections. There were a lot of examples in the Republican primaries last year. Rick was actually one of them here in New York where you had a candidate who was clearly more electable than the other candidate, who was favored by the establishment.

And the party base I think knew that and they still went with the unelectable canned date. That's why Harry Reid is still in the U.S. Senate, because the party base insisted on nominating Sharron Angle.

It's why the governor's race in New York was lopsided, because the Republicans nominated Karl Palladino. So I think that mood is very real and if they were willing to do that in so many races last year, I do wonder how does that translate in the presidential race in 2012?

FOREMAN: There is an anger issue, frustration. You look at generic polls where a generic Republican is beating President Obama by eight points -- There ought to be an anger issue.

LAZIO: Absolutely.

FOREMAN: Look at the debt talks, jobs, unemployment, everything under the sun seems to be going against normal Americans.

LAZIO: And they want it fix. People want it fixed. They don't want to see more stalemate, more name-calling and blame-shifting. They want to see the deficit addressed in a straightforward, honest way and they're not seeing, my view, not seeing the president do that.

They know that the economy's not creating the kind of jobs that we need. I mean, we're at 9.2 percent unemployment. We've got millions of Americans, almost 20 million Americans either out of work, can't find a job that they want, or are so turned off that they're outside and not even looking for a job anymore.

It is a profound problem facing America and they're not seeing, in my view, a president who's stepping up and saying, here's the way forward. He tried something with the stimulus package. He put some political capital behind that and I think people look at it and say, didn't look like it worked.

FOREMAN: You've got to give Michele Bachmann credit for this. She steps up, and one of the complaints against some of the other candidates, more traditional Republican candidates, maybe why some people aren't satisfied with the field, they still hear things that sound like politics. They like the idea of somebody who says, by golly, I'll solve the problems.

KORNACKI: Yes, she connects at an emotional level. I think what surprised people in the first, you know, two months or so of her campaign is she's actually got more polish and more poised than people anticipated.

LAZIO: In that debate --

KORNACKI: Exactly, when Sarah Palin speaks you kind of scratch your head, what is she trying to say? She connects at an emotional level, but she can't back it up with the poise and - but, boy, Michele Bachmann really can.

FOREMAN: I'm going to have to call it done at that point. Steve Kornacki, thanks for being here. Rick Lazio, a great pleasure talking to you both.>

Coming up, soak the rich. It's a tried and true way to win votes and it may be one way to help balance the budget. The only problem is this. Where does rich leave off and middle class begin?


FOREMAN: In all of these debates on the debt ceiling one of the things you hear over and over again is tax the rich and with good reason. A lot of Americans like this idea. Here's a poll from Quinnipiac University.

An agreement to raise the nation's debt ceiling should include spending cuts? 25 percent of the people think so. Tax on the wealthy, 67 percent. That's a whopping number in Washington terms. Think we should be taxing the wealthy more.

So the question is, who exactly are the wealthy? How many of them are out there. The American population's around 300 million people, the households making $250,000 or more, which is the group we're talking about here, is a tiny slice.

This is less than 2 percent of the population down here. When you hear such terms, and the Democrats are talking about corporate jets and yachts, you know who we're talking about, people like Bill Gates at $54 billion, Warren Buffett at $45 billion, Mark Zuckerberg, a mere pauper at $7 billion. I don't know that they have yachts. If they did, this is the kind of group you're talking about.

But here's something to bear in mind. These people could also be considered rich under this plan. Imagine you have a couple living in this country where they both worked very hard for a number of years and collectively, he makes $130,000 a year. She makes $140,000 a year. So collectively, they're now up to like $270,000 a year.

They're raising two children, the years pass, let's say these kids are college age. They're living outside a major city where expenses can run quite high. That money doesn't necessarily go anywhere near as far as it does for the uber rich, which is what we're often talking about.

Here's the important part that you have to bear in mind when you're thinking about this. These people are more than half of the people that we consider rich under the plans being discussed in Washington. So in the end you have to say, how much money can you get out of everyone if you go through all of that?

The simple truth is for us to get the debt under control by taxing the rich. We would have to more than double the tax rate on the rich and on the uber rich to get to that point, the 2 percent taking on a heavier load. It's not that Washington might not decide to do that, but that's a lot to squeeze out of that group by taxing the rich more heavily you might solve part of the problem but there's not much hint you're going to solve all of it.

Up next IN THE ARENA, what if harry potter never got out of the ground? What if the boy who lived had died as a manuscript? Happily for millions of us and J.K. Rowling, Barry Cunningham came along. The publishing whiz who discovered the wizard when we come back.


FOREMAN: If you a mogul and you live on the planet earth, you probably know that the final movie in the Harry Potter series is premiering in the U.S. tonight.

Advance ticket sales have already reached $25 million probably more by now. The movie and books together have earned more than $10 billion, the most successful franchise ever. But it's worth remembering that it all started with just one book, the first in a series of seven books that transported kids to a magical world of witches and wizard and brought that world to life in exquisite detail.

A story so captivating and inspired millions to turn off the TV of all things then put down the remote controls and read. I'm so pleased to be joined by the man who discovered Harry Potter. Barry Cunningham published the first Harry Potter book in England where it all started.

Thanks so much for coming in here and I know everybody asked you this, but I have to ask you anyway. When you read it the first time, did you think this is a sensation?

BARRY CUNNINGHAM, J.K. ROWLING'S FIRST EDITOR: I really knew that children would love it. I knew it appeals book - the children that go to bed with books under their pillows. But I never imagined really the adults could love it quite it as much.

FOREMAN: Did you love it that much the first time?

CUNNINGHAM: Yes, I was enchanted, but I was enchanted, you know, by the owls and the magic, but I was really enchanted by the friendship and that's I think what really drives the story. The story of how they support each other and how they're there for each other.

FOREMAN: You are not aware when you first read this that basically everybody else in the publishing industry had already turned it down.

CUNNINGHAM: No, no - everybody in the universe have turned it down. I just, you know, I just read it one night and I rang up the next day and I bought the first two books. It must be the best deal that publishing -

FOREMAN: What did it feel like when you sat with J.K. Rowling you said OK, let's talk about your manuscript and what we're going to have to fix and change and the things you do in editing?

CUNNINGHAM: Well, she had some radical ideas. She said, you know, how do you feel about sequels? I said, let's take it book by book. And then she told me the whole story, which was a burden because I'd kept that -- had to keep that a deep secret all these years.

FOREMAN: What do you mean?

CUNNINGHAM: She told me the whole sequence of events as she imagined it panning it.

FOREMAN: The story we're just hearing now she knew from the beginning?

CUNNINGHAM: Yes, she'd worked it all out from the beginning. Not in detail, but overall plot terms and she said Harry's going to grow up, which was in those days another radical thing. You know, growing away from your audience, but maybe growing up with your audience as well so yes. So I said, well, on I'm not -- we called it Harry Potter and the Philosopher's Stone in England. I wasn't wild about the word philosopher in a children book title.

FOREMAN: It doesn't crackle a lot.

CUNNINGHAM: It didn't crackle. Like all good editors I gave way to my author in the end. I nearly said my daughter, who was the first fan, gave way to both of them in the end.

FOREMAN: What did you think this was worth?

CUNNINGHAM: I paid a very low amount of money, a few thousand pounds.

FOREMAN: Really.

CUNNINGHAM: And I gave her immortal advice, which is often repeated back to me, that I said that at that time she was a single mom, she was writing in her spare time.

I said, you should really get a day job because you'll never make any money out of children's books. What I meant was -- that it's a tough world. It was a tough world, publishing children's books.

FOREMAN: When did you have the sense, though, that this was becoming something much, much bigger? You saw sales. I'm sure, that's doing OK, I made the right call.

CUNNINGHAM: Yes. Actually, the very first -- it sounds folksy. I went to my kids' school and the girl who was showing me down to meet the teachers was holding the first book, the very first book. And I said, like all good publishers, what did you think of that?

And she really hugged it. She said, I love this book and I knew we were making a real connection with children. And most children's phenomenon to this day really are created, you know, in darkened rooms by marketing men. But this was created by children just loving the story. A huge phenomenon like this started as you said with just a book.

FOREMAN: There's very much the sense with this series of books that this opened the door for all sorts of young kids who had been simply, in many ways, lost in the world of computers and games and television, everything else. Suddenly saying, reading can be worthwhile.

CUNNINGHAM: Yes. It rescued reading for a generation, I think. It made reading cool again. It opened the door to lots more new authors, lots more new writers. And I couldn't be prouder of that, really.

FOREMAN: There's nothing that is a bigger question for Harry Potter fans all over the country than, is this really, really, really the end?

CUNNINGHAM: Well, in a way, you know. The end of the movies is very sad and everybody will get very emotional tonight. And I was in London at the premiere there and everybody was crying. In a sense it gives these books back to the readers.

And because of Potter more, she's starting a big website telling the story behind the story and giving lots more information so who knows. It kind of opens up the relationship between the reader and her audience in a different way now.

You know, I've never met a child who doesn't believe the story carries on after the last page and has started before the first page. And this new venture of hers, perhaps, will do that.

FOREMAN: But you know what I'm asking. The simple truth is people are saying, have I seen the words "Harry Potter" for the last time in print, or suddenly will there be a door opening and there's Harry Potter again?

CUNNINGHAM: Who knows? She said never say never again.

FOREMAN: Would you like to see it go on?

CUNNINGHAM: I'd love to see it go on. I think there are more stories to tell.

FOREMAN: Let me ask you one last question about all of this. You found this thing sitting out there.


FOREMAN: Even if we never see Harry Potter in print again, nothing new happens with Harry Potter, how much confidence do you have that right now, on someone's desk in someone's computer, in someone's mail slot, somewhere, is another great, great story that's just waiting for someone like you to pick it up and say, I'll take a chance on this? CUNNINGHAM: I really have every confidence that there are more great stories out there and there are great things to discover. Yes, I really do. And she's opened up -- she's opened up reading in a new and exciting way. But there will be new stories to tell. They won't be the same. They won't be predictable, but there will be another magical moment. Yes, I know there will.

FOREMAN: Well, we certainly hope so. Barry Cunningham, thank you for your part in bringing a great story to everybody. It's terrific.

And with that we have cast all the spells we can tonight. Thanks for joining us IN THE ARENA. Good night from New York. "PIERS MORGAN TONIGHT" starts right now.