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Boehner Announces Payroll Tax Deal; Iraq's Nightmare Coming True; Interview With NY Senator Chuck Schumer; Ron Paul Gets Testy Over Newsletter Scandal

Aired December 22, 2011 - 17:00   ET

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

WOLF BLITZER, HOST, CNN'S THE SITUATION ROOM: And you're in THE SITUATION ROOM, happening now. Breaking news, House Republicans holding critical talks this hour on a possible deal to extend the payroll tax cut. It looks like things are falling into place, but the outcome will determine if millions and millions of Americans will be spared a tax hike on New Year's Day.

Also, Iraq's worst nightmare is coming true, just days after the last U.S. troops leave. This hour, an explosion of deadly violence and growing fears that the Iraqi government is falling apart.

And, can Ron Paul stand up to the scrutiny that comes with being a front-runner? We're taking a closer and harder look at the Republican's response to the controversy over racist newsletters sent under his name many, many years ago.

Breaking news, political headlines and Jeanne Moos -- all straight ahead.

I'm Wolf Blitzer. You're in THE SITUATION ROOM.

ANNOUNCER: This is CNN breaking news.

BLITZER: This hour, we could see the end of another embarrassing example of gridlock here in Washington. House Republicans are due to discuss a new way out of the standoff over extending the payroll tax cut only days before the end of the year deadline. We learned of a deal, a deal in the works just a little while ago.

Our senior congressional correspondent Dana Bash and our chief White House correspondent Jessica Yellin, they're both following the story for us.

Lots to report on.

Dana, first to you. What's the very latest?

DANA BASH, CNN SENIOR CONGRESSIONAL CORRESPONDENT: Very latest is I just got an e-mail from a Democratic source who told me that he is sitting in his office, holding his breath, hoping that that conference call you just mentioned that's going to start at this hour, as we speak, among House Republicans goes as they hope it will and that will mean that the Republicans will end up approving this two- month extension for this payroll tax.

That is something that Republicans, of course, have been resisting. They said they would not do that. But the pressure that has come from fellow Republicans in the Senate and from their constituents and even from the conservative "Wall Street Journal" to relent really, it seems to have been too much for them. So, that is why we understand this deal was finalized late this afternoon with the House speaker and the Senate majority leader.

And we are told that really the only real change to what the Senate passed over the weekend to this two-month extension is something technical that will allow businesses not to have problems that they were worried about with record to payroll filings. That's basically it.

Long-term, they are going to start to negotiate to make sure that this payroll tax does get extended for a year, which everybody wants to do. But in the short-term, the bottom line, the headline, House Republicans are relenting. They're caving.

BLITZER: And you said there's going to be a conference call. What's that all about?

BASH: Look, this is something that is very delicate. The whole reason why the stalemate is even taking place right now is because House Republicans revolted. There was an initial conference call on Saturday where the House speaker and Republican leaders, we understand, thought that this Senate compromise, this two-month extension, would be able to be passed by the House. Well, again, this revolt happened and that is why it is so important for the Republican leaders to once again have a call, talk to their members, which is going to go on as we speak, to make sure they can actually pass this.

Their goal, Wolf, in the House and the Senate ultimately as well is to not call members of Congress back to Washington. They're already gone. They're gone for Christmas. Their goal is just to pass this by what's called unanimous consent, which means everybody' got to agree to this, which is almost laughable when you think about how much resistance there was among House Republicans.

That's why this call is incredibly important for House Republicans, to make sure that they do have their members on board. Members, Wolf, who were very steadfast in saying that we don't think on a policy level, extending the payroll tax for two months is a good idea.

But we understand from Republican sources, they were really, really hearing from their constituents back home -- wait a minute, this means that you're not going to potentially jeopardize me having $1,000 in my paycheck. Excuse me. Congress is dysfunctional enough, fix this, even from the most conservative members, they heard that loud and clear from their constituents.

BLITZER: Unanimous consent, there can always be a snag. We'll see what happens. Dana, stand by.

Jessica Yellin is over at the White House.

What are officials there saying? What's their strategy, Jessica?

JESSICA YELLIN, CNN CHIEF WHITE HOUSE CORRESPONDENT: Wolf, the posture here is wait and see. Everybody is waiting to see what happens on that 5:00 p.m. conference call you and Dana were just talking about, to see if there is a deal and House Republican members will accept the terms of that deal and then if that musters a yes from everyone, when the deal will be finalized.

If they agree to do this unanimous consent tomorrow, in theory, you could have the president sign two bills tomorrow. The bill that would fund the government through next year and then another bill that would ensure American's taxes don't go up on January 1st. And if all of that works out, and it's all smooth, then the president in theory could board a plan to Hawaii and join his wife and family for Christmas.

But that's a lot of ifs at this point. And right now, the president or the White House, I should say, has been in touch with Majority Leader Harry Reid's office to get, you know, the details and the latest on what exactly was in that negotiation. But every side here is remaining silent among the Democrats as they just hold their breath and hope that this conference call goes well and they do have a handshake and a deal at the end of this evening, Wolf.

BLITZER: The clock is ticking, everyone apparently wants to get out of the town, not only the president, but members of Senate, members of the House. Most of the Senate, by the way, is already out of town.

Guys, stand by for a moment. We're going to see what happens on the Hill. See what happens at the White House; see if the president decides to come into the briefing room. We'll, of course, have all the developments here on CNN. Guys, stand by.

Earlier, the president invited middle class Americans to the White House to help pressure House Republicans to agree to this payroll tax cut extension. The Obama administration had asked people to share how they would spend roughly $40 a paycheck, the amount they stand to lose if the tax cut isn't extended.

Listen to the first two responses the president read.

(BEGIN VIDEO CLIP)

BARACK OBAMA, PRESIDENT OF THE UNITED STATES: Joseph from New Jersey talked about how he would have to sacrifice the occasional pizza night with his daughters. He said, and I'm quoting, "My 16- year-old twins will be out of the house soon. I'll miss this."

Richard from Rhode Island wrote to tell us that having an extra $40 in his check buys enough heating oil to keep his family warm for three nights. In his words, I'm quoting, "If someone doesn't think that 12 gallons of heating oil is important, I invite them to spend three nights in an unheated home."

(END VIDEO CLIP)

BLITZER: All right. Let's bring in our senior political analyst, Ron Brownstein, the columnist for "The National Journal."

Ron, you know, I always love the props in effect. These are real people out there the president brings them over to the White House to read their stories. The Republicans do the same thing on the Hill.

RON BROWNSTEIN, CNN SENIOR POLITICAL ANALYST: Right, right.

BLITZER: John Boehner shows up with conferees. There may not be conference committee, he's got the conferees. He's got the members.

It's part of the staging, if you will, the political pressure that goes on.

BROWNSTEIN: Yes, absolutely. And for the president, I think those props or those people really underscore an important point. The payroll tax is the tax, a federal tax that is most important for kind of working class, lower middle class Americans.

You know, Republicans had been I think ambivalent at best throughout this about extending the payroll tax. They're more enthusiastic about cutting income taxes, which they believe changes the incentive for economic behavior.

And one of the reasons why we hit this impasse which has led to the Republicans having to retreat and relent, I think, is there was just a lack of enthusiasm all the way through about doing this among big portions of Republican caucus. You know, Mitt Romney has been basically denouncing this for months as little more than a Band-Aid.

So, you do see the kind of the contrast to where the parties want to put their emphasis, but in the end, the idea of being responsible for a tax hike was simply an unsupportable position for the House Republicans to be in.

BLITZER: Because it's a hard argument to make, you know, they would fight until the death basically to prevent a tax increase on the wealthiest Americans.

BROWNSTEIN: Right.

BLITZER: But some of them were willing to allow a tax increase in effect, even during these tough times, on middle class Americans. It's hard to understand that kind of logic.

BROWNSTEIN: Well, you know, I mean, the Republicans will basically argue that marginal tax rates, what you pay in your income tax, is what shapes economic behavior. And going back to Reagan and his supply side tax cuts, that the way to unleash economic growth is by reducing tax rates especially for people at the top.

The payroll tax argument is very different. It's about putting money in the pockets of people who are living paycheck to paycheck, as we heard in the president's example, on the theory that they are more likely to spend it. It's a tax cut that is more popular with Democrats than with Republicans. And I think, you know, what we saw here was not only John Boehner's difficulty in corralling his own caucus, which I think is a big part of this story, but also a clear contrast in where the parties prefer to see taxes cut and the kind of incentive they want to create.

BLITZER: So, it looks like there's going to be a deal. Folks will be able to go home for Christmas, for New Year's and that's that.

BROWNSTEIN: Yes. Well, you know, it has been a tumultuous year and it's probably, you know, this deal is probably just a mere, a little break in the battle. I mean, as I said, the big story, John Boehner's difficulty in delivering his caucus for a deal that Senate Republicans thought they had with him. I mean, I think we're probably going to see more of that kind of turmoil next year because the driving force of this entire congressional year has been the reluctance of Tea Party Republicans to kind of follow the expected path. They are here not so much to make deals as to make conference --

BLITZER: As I say, there's no deal until there's a deal.

BROWNSTEIN: Right.

BLITZER: So let's see what happens on this conference call. Let's see if all the Republicans fall in line behind the speaker.

BROWNSTEIN: They haven't always before. Yes.

BLITZER: No, it wouldn't be the first time.

Ron Brownstein, thanks very much.

BROWNSTEIN: Thanks, Wolf.

BLITZER: We'll stay on top of this story. Don't go too far away.

But there's other important news we're following right now, including in Iraq, it didn't take very long for Iraq to start unraveling without U.S. troops around to help hold the country together. More than a dozen attacks today across Baghdad, killing at least 65 people, hundreds injured. The new violence on top of growing turmoil within the Iraqi government.

Now, those who predicted this kind of crisis after the U.S. withdrawal are tempted to say, "I told you so."

CNN's Arwa Damon is joining us from Baghdad.

Arwa, you learned about a top U.S. official, a top general, if you will, visiting Iraq today in the midst of all of this. What's going on?

ARWA DAMON, CNN INTERNATIONAL CORRESPONDENT: That's right, Wolf.

And the office of Prime Minister Nouri al-Maliki putting out a very brief statement, saying that General Ray Odierno, the Army chief of staff, but also if you'll remember, a man who has done multiple tours here in Iraq, met with the prime minister. They are discussing, equipping, training the Iraqi security forces.

One can also only assume that politics came into play given the crisis that the government is in right now. And that is really underscored by the violence that we saw taking place here because the Iraqi government is never going to be able to get a grip on violence if it can't get a grip on politics. Today, an example of that.

(BEGIN VIDEOTAPE)

DAMON (voice-over): It is a tragic but all just familiar routine in Baghdad -- cleaning a carnage, pools of blood, the burnt out shelves of vehicles, streets strewn with broken glass. The explosions that rocked the Iraqi capital Thursday were painfully reminiscent of Iraq's dark days. Sixteen of them came during the morning rush hour. The targets: mostly civilians.

This is Iraqis' worst nightmare -- the unraveling of a fragile political compact hard on the heels of a U.S. troop withdrawal.

The government seems to be collapsing like a deck of cards. The Sunni vice president, Tariq al-Hashimi is wanted on charges of terrorism and now being protected by the Kurds in the semiautonomous region of Kurdistan.

The vice president's Sunni-backed Iraqiya bloc says the allegations against him are politically motivated. It sees a Shia- dominated government going after Sunni opponents.

Prime Minister Nouri al-Maliki, a Shia, who is close to Iraq, is demanding the Kurdish authorities to render al-Hashimi, but they haven't.

Thursday's attacks are widely thought to be the work of al Qaeda in Iraq, which always has tried to stoke Sunni-Shia tensions. Terrorism in Iraq relishes a political vacuum.

DR. RAFI AL-ISSAWI, IRAQI FINANCE MINISTER: The political process is not only fragile, but it is downhill, in fact, because of the intimidation of the partners. It means they will just defy their criminal activities that the solution is not in the political process solution, something else.

DAMON (on camera): I'm sure prior to withdrawal, you, yourself, other members of al-Iraqiya were warning the American that is this was going to happen.

AL-ISSAWI: So many times, we warned the Americans that the security and the political situation is so fragile. So, things should be not only gradual, should be responsible. And unfortunately, no one listened.

DAMON (voice-over): Just how fragile. This man at the scene of one bombing in a Shia neighborhood yells: this is because of Allawi and Hashimi -- blaming the leader of the main opposition party and the vice president.

In this city of Fallujah, a former stronghold of Sunni insurgents, hundreds took to the streets, chanting in support of al- Hashimi. Al-Maliki is an American agent, they yelled.

Iraq on the edge -- a far cry from the democracy Washington wanted to leave behind.

(END VIDEOTAPE)

DAMON: And, Wolf, it's also a far cry from the democracy in the nation that Iraqis thought the U.S. would be bringing them when they initially toppled Saddam Hussein back in 2003. Days like today with this level of violence, watching the Iraqi government appearing to crumble like a deck of cards, that most certainly does not give Iraqis a lot of optimism for their future.

BLITZER: It's so disheartening, Arwa. You and I spoke yesterday. We reported that the CIA director, General David Petraeus, made a surprise visit to Iraq, presumably to ease this crisis, as you say, General Ray Odierno, a former U.S. commander in Iraq and now the Army chief of staff, he's there right now. The White House says Joe Biden, the vice president, has been on the phone with President Talabani and others.

Here's the question and I'm anxious to get your assessment: How much influence does the United States have in Iraq right now?

DAMON: Not enough, Wolf. It most certainly can't force these political parties, the leadership, to a table, and most certainly cannot force a negotiation on them anymore. And if anything, it's important to note that perhaps amongst many of the Iraqi political blocs, there would be something of a backlash should the U.S. try to force them to come to any sort of a deal because it's important to remember that this last so-called power-sharing deal that brought this current government together was brokered by the U.S. and ended up being a complete sham.

Iraqis don't have a lot of trust in America right now. We've been talking to members of the Iraqiya bloc quite over the last few days. That's the vice president's bloc, Sunni-backed bloc.

And they were wondering why it is that U.S. makes the decisions that it does, backs individuals that it does.

So, on the one hand, the U.S. does not have the influence it used to. On the other hand, Iraqis do not necessarily want America to get involved at this stage. BLITZER: Arwa Damon on the scene for us, as I say, a very disturbing, disheartening development only days after U.S. forces leave Iraq. And remember, still 17,000 Americans in Iraq. Half diplomatic support, half security contractors. They are in danger right now. We'll stay on top of the story for our viewers.

We're getting new information. The speaker, John Boehner, has just issued, just issued a statement saying he's reached a deal with the majority leader of the Senate, Harry Reid. We're now told that the speaker will have a statement at the half hour 15 minutes from now. Much more on the breaking news coming up right here in the SITUATION ROOM.

We're looking at live pictures from Capitol Hill. The speaker will go there and make this dramatic announcement, allowing the continuation of the payroll tax cut to continue into the New Year. A 160 million Americans are

(COMMERCIAL BREAK)

ANNOUNCER: This is CNN Breaking News.

BLITZER: All right. Let's get back to the breaking news. The House speaker, John Boehner, just announcing he has reached a deal with the Senate majority leader, Harry Reid, that will allow these payroll tax cuts to continue into the New Year.

Let's bring in our chief Congressional correspondent, Dana Bash. She's watching the story for us. A formal statement by the speaker, Dana, just been released, and we're getting ready for him to show up on the microphones.

BASH: That's right. That should happen. We should hear from him in about ten minutes, but in the meantime, let me read to you what the speaker is saying. He says, "Senator Reid and I have reached an agreement that will ensure taxes do not increase for working families on January 1st, while ensuring that a complex new reporting burden is not unintentionally imposed on small business job creators."

The headline here, the most important to cut through it all is that House Republicans relented. They effectively caved under intense political pressure from fellow Republicans, from Democrats, from the president on his bully pulpit, and from their constituents saying that they do not want the House Republicans to continue to hold firm and not allow this two-month extension of the payroll tax cut to go forward, which would effectively have meant for the average American to see $1,000 cut out of their paycheck.

This is something that has been a very difficult, difficult situation for Republicans because they felt in the House that they were right on policy, but talk to them pretty much to a person they say -- they admit that they completely misread and mishandled the politics on this, and that's why you have seen this. Now, as we speak, there is, at least, a short while ago, there was a conference call that had been going on, Wolf. We talked about this, with Republican rank and file members. The fact that it started just about 20 minutes ago and the House speaker has already put out a statement means that even though they're very unpredictable, the Republicans in the House conference, they feel that they are on firm ground, that they can pass this and probably pass without having to pull the House back to town and be able to do it by what's called unanimous consent.

So, everybody agrees to it. They don't even have to cast a real vote.

BLITZER: It looks like the speaker has now accepted what Mitch McConnell proposed yesterday. Mitch McConnell has said he's ready to name conferees, to start working in the coming weeks, to make sure the extension isn't just for two months, but for the entire year.

Now, we see Boehner in a statement saying he has a commitment from the Senate that they'll establish these conferees, House Senate members working together. Also, he says, we're going to ask the House and Senate to approve this agreement by unanimous consent. I want you to explain, Dana, unanimous consent.

That means everyone has to be on board, but you know, some people in the House and Senate, they don't like this deal.

BASH: That's right. Everyone has to be on board, but, I think, the best way to describe it is almost the reverse is to say that nobody can object. And as long as nobody objects to it, then, they'll be able to get this through. And, it seems pretty clear the fact that the speaker put this statement just after talking to the rank and file that he feels comfortable doing this.

Look, he has had a tough time with his conference throughout the year, and especially over this latest stalemate. He would not put this out if he didn't feel that he was able to get this through. And on the other issue that you mentioned in the speaker's statement, yes, what they're going to do in the Senate is appoint what's known as conferees, negotiators to sit down very soon with Republicans in the House and the Senate to start to discuss how to come up with what everybody really wants.

Everybody wants a one-year deal to cut this payroll tax. The issue has been and it still is, how do they pay for it. It's about 120 to $160 billion that they have to find in order to pay for that payroll tax cut for Americans to go through the end of the year, and that had been the sticking point.

That is why, initially, the Senate agreed to this two-month deal because time was running out. They all wanted to get home for Christmas and that's why.

BLITZER: That's what happens. All right. Dana, thanks very much. Don't go too far away. Chuck Schumer, the senior senator from New York, is joining us right now. He's obviously been a player in all of this.

Senator Schumer, thanks very much for coming in.

But I assume you're very happy that this deal looks like it's going to happen.

SEN. CHARLES SCHUMER (D), NEW YORK: Yes, we are very glad because it's a win for the American people. To have the middle class payroll tax cut expire would have been bad for middle class families and bad for our whole economy, so we're glad that the House has come to its senses and basically passed the Senate bill. They suggested a technical correction which is a good one, but the Senate bill is largely passing intact.

BLITZER: So, correct me if I'm wrong. Basically, the House/Senate conferees, the members, are going to have two months right now to work out a deal that will allow this tax cut to continue for the rest of the year, allow unemployment benefits to continue, and allow these Medicare reimbursements for physicians to continue. But that's easier said than done, isn't it?

SCHUMER: It is. And we will see if our House colleagues really have good faith. If they do what they did on their first bill, load it up with so many things that make it unpalatable to just about anybody, then we'll know that they're really not with good faith to get this done for a year. But there are -- because of the work of the super committee, there are pay-fors that are not easy, but can bring about bipartisan agreement.

That will be the job of these conferees, and hopefully the extreme wing in the House, who initially was against any payroll tax cut, then was only for one if it was so loaded up with things that were unpalatable to the rest of us that we were never going to get one, if they don't run the show, we can get this done. If Speaker Boehner continues to let them run the show, then we won't be able to get it done. It's that simple.

But this is a good first start. Speaker Boehner has ultimately prevailed over this hard-right minority in this caucus, and hopefully it's a metaphor for the future, because for a while, they wouldn't take yes for an answer, and now they finally have.

BLITZER: Now, the Republicans, almost to a person, they say no new taxes on even millionaires and billionaires. Is it fair to say that the conferees, from the Democratic perspective, that you guys have given up a tax surcharge, if you will, on people earning more than a million dollars to pay for the continuation of this payroll tax cut for the middle class Americans?

SCHUMER: Look, we think that's the fairest way to go because everyone has to give a little bit here, and those at the highest income levels, over a million dollar incomes, have done the best in this economy. So that should still be on the table.

Obviously, we have to come to a compromise, but it is the view of many Democrats that having those of incomes over a million pay a fair share of this makes some sense. But we want to have a compromise. We want to get this done. We want a yearlong extension because it's good for the economy and good for the middle class.

And I would just say one other thing, Wolf. Let's hope that now we have turned the page.

There was a small group in the House that basically believed in brinksmanship and paralysis of government until they got their way on just about everything, and it led to the kind of paralysis, the kind of gridlock and deadlock that we saw this past year. But this was the first time they sort of had to wave the white flag. And let's hope it's a metaphor that mainstream conservatives, but not those way out on the deep end, will be involved in running the Republican caucus, and Democrats and Republicans can come together in a bipartisan way.

And the first real test will be extending it for a year. If people insist on things that are unpalatable like cutting Medicare or eliminating the president's health care bill, we'll know we're back to the old ways, but hopefully that won't happen.

BLITZER: Senator Schumer, thanks very much for coming in.

SCHUMER: Thank you. Good to be here.

BLITZER: Thank you. Let's get some reaction over at the White House. Jessica Yellin is our chief White House correspondent. She's working this part of the story for us. Jessica, we're going to hear from the speaker of the House momentarily. We've got live cameras up on Capitol Hill awaiting him to show up with the microphones.

There you see some of those live pictures coming in from Capitol Hill. Any hint that we'll be hearing from the president of the United States shortly there after?

YELLIN: You know, Wolf, they're monitoring this as it's unfolding and waiting to watch the speaker and hear from him directly, but I would be surprised if we saw the president come out tonight only because it still isn't finalized, and so, you want to wait until this is all cooked and done before all that happens.

But, you know, we could see the white house put out some kind of statement or some kind of final issue of approval and relief that this is coming together. I can tell you that there is relief here at the White House that this does seem to be reaching conclusion, but again, nobody wants to get ahead of any sort of final deal, Wolf.

And because this came so close before and then fell apart, again, they're being very, very cautious about saying anything until the deal is done.

BLITZER: You know, it's very interesting, Jessica. You read the statement that the speaker just put out, Speaker Boehner, and it begins with Senator Reid and I, Senator Harry Reid, the majority leader in the Senate, and if you read the entire statement, there's no reference to the president of the United States. No reference to White House officials.

As far as we know, on this day, we know the president spoke with the speaker and majority leader yesterday, but were there conversations that were going on today?

YELLIN: Yes, the president spoke to Speaker Boehner this morning. They had a conversation, and in that conversation, they both reiterated their positions, which were the president wanted that two- month extension and Speaker Boehner wanted the one-year. But I believe in that conversation. It was made very clear that the president wasn't going to give on the two-month. And so, the speaker didn't have a lot of room to maneuver around that.

And then, hen Senate minority leader, Mitch McConnell, a Republican, came out with that public statement basically telling Speaker Boehner, I'm not on your side on this one, you got to cave, that, you know, really put a nail in the coffin in some ways politically and added a lot of pressure, and then, the negotiations happened between Senator Reid's staff and Speaker Boehner's staff.

And they did find this one area to allow some accommodation on this accounting concern that the speaker's office had and House Republicans had and that gave them some cover to cut a deal. Go ahead.

BLITZER: I was going to say, Jessica, assuming that this is a done deal and we'll know fairly soon, this will enable the president to go and meet up with his wife and two daughters in Honolulu in Hawaii where they already have been for the past several days. He's getting ready to head out there.

YELLIN: Yes, in theory it would. There's one nibbling concern in the -- it says -- Speaker Boehner's statement says, we will ask the House and Senate to approve this agreement before Christmas. And you would think that means definitely it would get done tomorrow, and then, the president could fly off, but it is a 12-hour flight from here, I believe, to Hawaii and if this pushes into the weekend, who knows the timing of how long it would take the president to get there.

So, I'm sure if this all comes together at the White House, they are hoping it happens tomorrow so that everybody could leave tomorrow night or Saturday, but I guess, we'll have to wait and see on the exact timing of all this.

BLITZER: Yes. Air force One can get there much more quickly than 12 hours.

YELLIN: That's a good point. They fly super fast.

BLITZER: They just fly straight out there. I'm sure the president --

YELLIN: You make an excellent point.

BLITZER: -- will get there in time for Christmas Eve.

Stand by for a second, Jessica. I want to go back to Dana Bash up on Capitol Hill.

Dana, we had a statement a little while ago from the Speaker, John Boehner. I take it now the Senate majority leader has just released a statement, Harry Reid?

BASH: That's right. They were waiting to hit "send" until the Speaker put out his statement, but now the Senate Majority Leader, Harry Reid, is saying, "I'm grateful that the voices of reason have prevailed and Speaker Boehner has agreed to pass the Senate's bipartisan compromise."

It's not a lot of crowing there, but if you read between the lines -- you don't have to read that far between the lines to see the crowing, I should say. And Democrats certainly feel that they have won on this politically and in terms of policy as well.

One very interesting nugget that Deirdre Walsh, our congressional producer, and I were just hearing from Republican sources who were on this conference call that we were talking about, that the Speaker had with rank and file Republican members just a short while ago, Wolf, we are told that the Speaker just gave his statement. He explained what this deal is. He said that he made the deal with Harry Reid, and that's it.

He did not give any of the rank and file members a chance to complain. He didn't give them a chance to say positive things or negative things, which is very telling and very interesting, that that was the tactic that he used, considering the fact that this whole thing blew up, so to speak, because of a conference call where there was a revolt on Saturday over this policy.

He didn't give them a chance to revolt this time. He just said here's the deal, this is what we're taking, and that was it.

BLITZER: You've got to do it.

All right. Thanks, Dana. Don't go too far away.

We're getting ready to hear from the Speaker of the House, John Boehner. And we'll take that live, of course, as soon as he shows up at the microphone.

Ron Brownstein is back, our senior political analyst, columnist for "The National Journal."

You know the song "The Sounds of Silence"?

BROWNSTEIN: Yes.

BLITZER: I suspected there was a deal. You know what? Because we really wanted to get an official from the White House here in THE SITUATION ROOM today and they kept saying maybe not. Normally, they would be very happy to put one of their aides from the White House on the show, but when I got the repeated "Nos," I said to myself, they are getting close to a deal, because it's one thing for the president to go out and have a little photo-op with these real people at the White House, as we like to call them, but it's another thing to have one of their top aides come out. They didn't want to do it because they knew they were close. BROWNSTEIN: Well, we know John Boehner reached out to the president today and basically said, look, the Senate won't negotiate with us, will you send up some administration officials to negotiate with us, trying to basically look for some kind of way out of the impasse they were in. And the president said no.

BLITZER: All right. Hold on a second. Here he is.

(BEGIN LIVE SPEECH)

REP. JOHN BOEHNER (R-OH), HOUSE SPEAKER: Good evening, everyone.

Senator Reid and I have reached an agreement on payroll tax relief on behalf of the American people. Key parts of this agreement are that on January 1st, no American worker will see an increase in their taxes. We will ensure that a new complex reporting burden is not unintentionally imposed on small businesses.

This solution will, at a minimum, prevent small businesses, very new administrative burdens, and ensure that American workers will see their tax relief as soon as possible. The Senate will join the House in immediately appointing conferees with instructions to reach an agreement in the weeks ahead on a full, one-year payroll tax deduction, along with unemployment reforms, an extension of unemployment, and the so-called "doc fix" for two years.

We expect that these members will work expeditiously to complete the one-year extension that all of us want. We will ask the House and Senate to approve this agreement by unanimous consent before Christmas.

Middle class families and small businesses are struggling, and they're making sacrifices. And I think this agreement will help our economy.

One important provision in this measure that I want to highlight is the Keystone pipeline. As you know, this project would create tens of thousands of jobs in our country. This jobs project has bipartisan support in the House and Senate. It's backed by a broad-based coalition, and I hope the president will approve this pipeline to put those Americans to work.

I want to thank our members, particularly our conferees who have remained here in the Capitol with the holidays approaching, for their efforts to enact a full-year extension of the payroll tax cut for working families. And under this agreement, we're going to do that just as quickly as possible.

I don't think it's any time for celebration. Our economy is struggling. We've got a lot of work ahead of us in the coming year. But I want to wish the American people and all of my colleagues a very Merry Christmas and a Happy New Year.

QUESTION: Speaker Boehner, do you have assurances from your conference that nobody will object on the House side? Do you have everybody in line?

BOEHNER: I don't know that, but that's our goal, is to do this by unanimous consent.

QUESTION: Speaker Boehner, there's a lot of folks who are saying that you caved on this. Did you cave? And considering the fallout, was this the worst week of your speakership?

BOEHNER: You know, sometimes it's hard to do the right thing, and sometimes it's politically difficult to do the right thing. But when everybody called for a one-year extension of the payroll tax deduction, when everybody wanted a full year of extended unemployment benefits, we were here fighting for the right things. It may not have been politically the smartest thing in the world, but let me tell you what. I think our members waged a good fight.

We were able to come to an agreement. We were able to fix what came out of the Senate.

You know, all year, you've heard me talk about short-term extensions, short-term gimmicks, and the consequences they have for our economy. And, you know, when you look at this, it's just another -- it's another short-term extension. This creates uncertainty for job creators.

I used to run a small business. I know how this works. And kicking the can down the road for a couple of months does cause problems. And when you look at the reporting requirement that came out of this bill because it was hastily put together, it was a big burden for businesses, frankly, of all sizes.

QUESTION: Mr. Speaker, on the conference call, I know that you (ph) did not allow questions. I know on Saturday it was a rather lengthy overnight session.

Number one, was that by design, not to have that this time? And number two, one member who I spoke with said that he felt that he had been "hung out to dry" by the leadership because people weren't allowed to speak this time.

BOEHNER: I don't set up the conference calls.

QUESTION: But you're the Speaker of the House.

BOEHNER: Listen, we've got a lot of members with a lot of opinions. We have fought the fight, the good fight. But I talked to enough members over the last 24 hours who believe that hey, listen, we don't like this two-month extension, we don't like this reporting problem in the Senate bill, and if you can get this fixed, why not -- why not do the right thing for the American people even though it's not exactly what we want?

QUESTION: If someone objects tomorrow and it's not going to pass by a unanimous consent, will you bring the House back for a vote next week?

BOEHNER: Absolutely.

Last one. QUESTION: Mr. Speaker, just given the whole last week, and just -- we've seen photo-op after photo-op and news conference after news conference on both sides. Democrats are really charging that the radical Tea Party element of the House Republican conference are to blame for this.

Do you think that this whole fight was worth it and the political costs come up? And do you think that you guys ended up getting a good compromise?

BOEHNER: Listen, doing the right thing for the right reasons is always the right thing to do. And while everyone asked for a full- year extension of these programs, lot of people weren't willing to put the effort in, as the holidays were approaching, to get et it done. Our members were. So I'm proud of the efforts that they put into this.

Again, it's not always -- it's not -- it's not always easy to do the right thing. But we believe that we came here to change the way this town does business, and no more gimmicks, no more short-term this, short-term that. It's time to do solid policy, and it's time to do it the right way.

Thanks.

(END LIVE SPEECH)

BLITZER: There he is, the Speaker of the House, John Boehner, making the announcement that they've reached a deal. It's not a deal though until the formal legislation is passed either with a roll call, as he said could happen next week, or unanimous consent, which is less than a former roll call, that could happen as early as tomorrow.

Candy Crowley is here, Ron Brownstein is here.

So, is it fair to say -- I think it is -- that the Speaker blinked?

CANDY CROWLEY, CNN CHIEF POLITICAL CORRESPONDENT: I think so. And hanging his hat on a little tweak that means for reporting for small businesses, there won't be a lot of paperwork.

In the end, this mystifies me. This was such a bad issue for Republicans. That they held on this long is just astonishing to me.

BLITZER: He even acknowledged the politics were pretty bad for them.

BROWNSTEIN: Boy, that did not look like a man happy in his work. I mean, anybody who is not shopping and is watching this today is saying, you know what? It could be worse. I could be John Boehner this week.

I mean, this was just kind of the difficulty of his job. It does not appear he has command of his caucus.

This was not a situation that he wanted to be in. He probably warned them a week ago they would end up in this position if they rejected the deal, and yet here they were, and he was the one having to backtrack with, as Candy Says, a Hugh Hefner-sized fig leaf, which is to say, not very big at all, about making a minimal change in the Senate bill.

BLITZER: Hold on one second, because we're getting a statement from the president of the United States.

Let's go to our Chief White House Correspondent Jessica Yellin.

So what's the reaction, Jessica?

YELLIN: Hi, Wolf.

The White House has put out a statement by the president in which he congratulates Congress for ending what he called a partisan stalemate and ensuring that taxes do not go up for 160 million Americans in the new year. To read from part of this statement, he says that, "Because of this agreement, every working American will keep his or her tax cut, about $1,000 for the average American. That's about $40 in every paycheck."

You've heard them drive home that message over and over. And he says that vital unemployment insurance will continue.

And then he urged Congress to make sure that the payroll tax cut is extended through the end of the year when they come back. Let me read part of the statement verbatim.

"This is good news just in time for the holidays. This is the right thing to do to strengthen our families, grow our economy, and create new jobs. This is real money that will make a real difference in people's lives, and I want to thank every American who raised your voice to remind folks in this town what this debate was all about -- you. It was about you, and today your voices made all the difference."

And if I could just underscore for a moment, Wolf, what Candy and Ron were saying there for a moment, is that the president has been, ever since September, trying to refocus his message on jobs and on this election, positioning himself as a champion of working Americans, as the one fighting a dysfunctional Congress, in his words, to try to help Americans who are not getting a fair shake.

This was the perfect fight for him to do just that. And it's as if House Republicans handed him a perfect opportunity to end the year, positioning himself into the election year as that kind of a politician -- Wolf.

BLITZER: Jessica Yellin is over at the White House.

Thanks very much.

And very quickly, Candy, you've got to read the statement from the president. It sounds a little like he's gloating.

CROWLEY: A little. He also gets to go off on vacation, which he said he wouldn't do until he got the deal.

Listen, this was a clean win. I think you can tell from the tone of the statement versus the body language of John Boehner, and I think it is worse for John Boehner simply because it really wasn't his idea.

And that's what's -- he is defending something that he actually -- and it isn't the first time this year. Two or three times this year, he's gone for something, said, OK, you've got a deal, and gone back and had his own caucus say to him no.

BLITZER: Thanks for following the breaking news with us. We're going to stay on top of this story.

Also, other news we're watching right now, including what's happening out on the campaign trial.

Much more coverage coming up right here in THE SITUATION ROOM.

(COMMERCIAL BREAK)

BLITZER: We're following up right now on a story we brought you here in THE SITUATION ROOM yesterday. The Republican presidential candidate Ron Paul, he got his back up when our own Gloria Borger asked him some tough questions about a past controversy. At issue, some racist comments in newsletters written under Ron Paul's name many, many years ago.

Our Joe Johns has been digging deeper.

(BEGIN VIDEOTAPE)

JOE JOHNS, CNN CORRESPONDENT (voice-over): It's the kind of language that might be acceptable to a fridge element, say white supremacist groups. But not so much to a general election audience.

Excerpts of the newsletters for the better part of a decade starting in the late '80s were reprinted by "The New Republic" magazine in January of 2008. One newsletter entry titled "Blast 'Em" (ph) urged self-defense against carjacking. "It is the hip-hop thing to do among the urban youth who play unsuspecting whites like pianos. The youth simply walk up to a car they like, pull a gun, tell the family to get out, steal their jewelry and wallets, and take the car to wreck. I've urged everyone in my family to know how to use a gun in self-defense, for the animals are coming."

Another entry talked about crime in Washington, D.C. "I think we can safely assume that 95 percent of the black males in that city are semi-criminal or entirely criminal."

The author his highly critical of black leaders, including Jesse Jackson, calling him a "pinko, anti-white huckster hustler," and also critical of Martin Luther King, Jr. and the national holiday in his honor, calling King "The man who replaced the evil of forced segregation with the evil of forced integration," calling King "a world class adulterer who seduced underage girls and boys."

Ron Paul denies he wrote the newsletters. Here's how he responded when CNN's Gloria Borger asked him if he ever read them.

REP. RON PAUL (R-TX), PRESIDENTIAL CANDIDATE: Not all the time.

GLORIA BORGER, CNN CHIEF POLITICAL ANALYST: But you did read them.

PAUL: Not all the time. On occasion, yes.

BORGER: And did you ever object when you read them?

PAUL: We talked about this twice yesterday, CNN has. Why don't you go back at look at what I said yesterday on CNN and what I've said for 20-some years. It's 22 years ago.

I didn't write them. I disavow them. And that's it.

JOHNS: Three years ago, Wolf Blitzer asked similar questions.

BLITZER: How did this stuff get in these Ron Paul newsletters? Who wrote it?

PAUL: Well, I have no idea. I absolutely, honestly do not know who wrote those things.

BLITZER: Did you used to read these newsletters, Congressman?

PAUL: Not back then. There might have been times I would at times, but I was in a medical practice, I traveled a lot.

JOHNS: But in 1995 on C-SPAN, Paul seemed to acknowledge responsibility for one newsletter focused on investments.

PAUL: With that, I also put out a political type of business investment newsletter that sort of covered all these areas, and it covered a lot about what was going on in Washington and financial events, and especially some of the monetary events since I had been especially interested in monetary policy.

JOHNS: A Republican strategist sees this as a huge problem for the candidate.

RON BONJEAN, GOP STRATEGIST: It's very politically damaging to Ron Paul that this surfaces right now in Iowa when he's leading in the polls, the fact that these racist statements are out there and his name is on these newsletters. It doesn't matter if he wrote it or not, his name's on it and he owns it, and now he's going to have to explain it.

(END VIDEOTAPE)

JOHNS: Almost all of the newsletters we're talking about here appear to have been written while Ron Paul was a private citizen, working, as you could see, at least part of the time as a doctor and not a member of Congress. So it's not so easy to just go back and get a bunch of government records and try to figure it out -- Wolf.

BLITZER: And Ron Paul knows now that he's a top-tier candidate he possibly could win the Iowa caucuses. He's doing remarkably well. He knows he's going to come under greater scrutiny.

JOHNS: Absolutely. And as you know, and a lot of people have pointed out, this has not been talked about that much recently because there are a lot of people who really did not see Ron Paul as a serious threat to win anything. Now he's a top-tier candidate, leading in Iowa, and you've got to take another look at it and talk about it.

BLITZER: And it's interesting because, you know, if you hear who's responsible for a lot of this stuff coming out, it's conservative Republican kinds of folks. They're scared of him.

JOHNS: Sure. There are a lot of people. And you talk to some Republican strategists who say all of this is being drummed up once again because they are worried about Ron Paul getting some momentum in the caucuses, and there's a lot of fear that he wouldn't be able to do very well at all in the general election if he were to get the nomination.

BLITZER: Joe Johns, thanks very much for that.

So here's a question: Who is the real Sarah Palin? Jeanne Moos is coming up next.

(COMMERCIAL BREAK)

BLITZER: A new film produced by one of CNN's corporate cousins is putting a game-changing political face on former Republican vice presidential nominee Sarah Palin.

Here's CNN's Jeanne Moos.

(BEGIN VIDEOTAPE)

JEANNE MOOS, CNN CORRESPONDENT (voice-over): Can you pick the real Sarah Palin?

SARAH PALIN (R), FMR. ALASKA GOVERNOR: I will be honored to accept your nomination for vice president --

JULIANNE MOORE, ACTRESS, "GAME CHANGE": -- of the United States.

MOOS: She's more like Palin all right, Julianne Moore. Moore stars in a just-released trailer for the HBO movie about the 2008 election called "Game Change."

UNIDENTIFIED MALE, "GAME CHANGE": We desperately need a game change. None of these middle-aged white guys are game changers. So find me a woman.

MOORE: I will be honored to accept your nomination for vice president of the United States.

MOOS (on camera): Julianne Moore speaks in the trailer for exactly six seconds. And based on that six seconds, the reviews are in.

(voice-over): Her performance is "Uncanny." Entertainment Weekly says, "Julianne Moore's Palin steals the show." The show is a 50- second trailer.

And here's our favorite based on her six-second sound bite. "I can see an Emmy from Julianne Moore's house."

I wonder what Sarah Palin sees.

PALIN: I don't know. I think I'll just grit my teeth and bear whatever comes what may with that movie.

MOOS: The "whatever comes what may" comment was made months ago when Moore's selection was first announced.

Palin fans seem less than entranced. "Julianne Moore is much too old and not nearly pretty enough to portray gorgeous governor Sarah Palin."

But what's this got to do with a trailer about Governor Palin?

UNIDENTIFIED MALE, "JAWS": A mindless eating machine.

MOOS: The Web site Mediaite says, "The clip is edited to treat Julianne Moore's Palin basically like the shark in 'Jaws.'"

Note the ominous music.

WOODY HARRELSON, ACTOR, "GAME CHANGE": We need to create a dynamic moment in this campaign or we're dead.

MOOS: Did he say dead?

Sarah Palin's high heel in the trailer seems as lethal as Jaws' famous fin.

As if things weren't already confusing enough with Tina Fey --

TINA FEY, ACTRESS, "SATURDAY NIGHT LIVE": Hey. Listen up, everybody. I'm going rogue right now. So keep your voices down.

Available now, we've got a bunch of these.

MOOS: 2012 is shaping up to be the year of female political clones.

MERYL STREEP, ACTRESS, "THE IRON LADY": Gentlemen, shall we join the ladies?

MOOS: But which lady is which?

MOORE: I will be honored --

PALIN: -- to accept your nomination.

MOOS: Jeanne Moos, CNN --

MOORE: -- for vice president --

PALIN: -- of the United States. MOOS: -- New York.

(END VIDEOTAPE)

BLITZER: That's it for me. Thanks very much for watching.

I'm Wolf Blitzer in THE SITUATION ROOM.

The news continues next on CNN.