"Face the Nation" transcripts December 30, 2012: Sens. Durbin and Coburn

(CBS News) Below is a rush transcript of "Face the Nation" on December 30, 2012, hosted by CBS This Morning Co-host Norah O'Donnell. Guests include Senate Majority Whip Richard Durbin, D-Ill., Sen. Tom Coburn, R-Okla., CBS News Chief White House Correspondent Major Garrett, and CBS News Congressional Correspondent Nancy Cordes. Plus, a roundtable on the "fiscal cliff" and other political issues, with Time Magazine Columnist Joe Klein, Wall Street Journal columnist Peggy Noonan, former press secretary for President Bill Clinton Dee Dee Myers, and Time Magazine Executive Editor Michael Duffy.

O'DONNELL: Today on FACE THE NATION, with the country set to fall off the fiscal cliff in just hours, time is running out for Congress to make a deal. And what a difference a day makes. On Thursday, things looked bleak.

SEN. HARRY REID (D-NV), MAJORITY LEADER: Speaker Boehner is unwilling to negotiate, we have not heard a word from leader McConnell. There is -- and nothing is happening.

SEN. MITCH MCCONNELL (R-KY), MINORITY LEADER: We wanted an agreement, but we had no takers.

O'DONNELL: It took a trip to the White House and a public scolding from the president.

BARACK OBAMA, PRESIDENT OF THE UNITED STATES: The American people are watching what we do here. Obviously, their patience is already thin. This is deja vu all over again.

O'DONNELL: But by week's end, Senate leaders agreed to make a last-ditch effort to get a deal.

MCCONNELL: So I'm hopeful and optimistic.

REID: I'm going to do everything that I can. I'm confident Senator McConnell will do the same.

O'DONNELL: We'll have the latest on what that agreement might look like, but will it actually do anything to cut the deficit? And what happens if they don't get a deal? We'll hear from two senators who have been working together on deficit reduction, Assistant Majority Leader Dick Durbin of Illinois, and Senator Tom Coburn of Oklahoma. Then we'll look forward to 2013 with an all-star panel, including: Peggy Noonan of The Wall Street Journal; Dee Dee Myers of Vanity Fair magazine; TIME magazine's executive editor, Michael Duffy; and also TIME columnist Joe Klein. Plus, we'll hear from our own chief White House correspondent Major Garrett and congressional correspondent Nancy Cordes.

UNIDENTIFIED MALE: Are you going to get a deal today, sir?

MCCONNELL: Hope so.

O'DONNELL: It's all ahead because this is FACE THE NATION.

ANNOUNCER: And now from CBS News in Washington, FACE THE NATION with Bob Schieffer. Substituting for Bob Schieffer, co-host of "CBS THIS MORNING," Norah O'Donnell.

O'DONNELL: Good morning, again. And welcome to FACE THE NATION. Republican Senator Tom Coburn and the number two Democrat in the Senate, Dick Durbin, are here, and we'll turn to both of you in just a moment. But we want to start with some new information from chief White House correspondent Major Garrett and congressional correspondent Nancy Cordes who are here. I know you both have both been speaking with your sources this morning. And, Nancy, what's the latest?

NANCY CORDES, CBS CONGRESSIONAL CORRESPONDENT: Well, Norah, Democrats at this point are very pessimistic that leader Reid and leader McConnell in the Senate are going to be able to strike that deal that they were so hopeful about just 24 hours ago. Their two staffs worked late into the night. They traded proposals back and forth. But Democrats tell us that they are just still too far apart on taxes. Democrats want to set that limit at $250, 000 or less, let the Bush tax cuts expire for people making more than that. Republicans want that limit to be far higher. They're also very far apart on estate taxes. So leader Reid and leader McConnell are going to meet with their caucuses later today and at that point we expect that they're going to tell their members that they just weren't able to work out a deal on this.

O'DONNELL: Major, you have been talking to the White House. What do they say about this?

MAJOR GARRETT, CBS CHIEF WHITE HOUSE CORRESPONDENT: Well, the fiscal cliff preoccupation has largely been about taxes. But there's another part to the fiscal cliff, that is across-the-board spending cuts, and in ways that the administration simply hasn't before, it is now preparing in very real ways to send out furlough notices, break federal contracts, and apply the sequester, 6 to 7 percent across-the- board spending cuts across all federal agencies.

O'DONNELL: The White House is preparing to do that?

GARRETT: It has to, because the deadline is approaching. It cannot reasonably ignore the law, and misapply it. So it is now preparing to send out all a variety of notices to federal contractors, the contract is suspended or canceled. Or to tell various agencies, the TSA, FAA, all throughout the federal government, lay people off, this is real, because they see the negotiations are not getting anywhere near a deal and they have to prepare for the cutting side of the fiscal cliff, not just the taxes.

O'DONNELL: And then, Nancy, if there is no deal, what happens next on Monday?

CORDES: Well, then essentially we move to plan D, where Senate Democrats introduce their own plan in the Senate that caps the Bush tax cuts a at $250,000 or less, extends long-term unemployment benefits, maybe imposes some spending cuts to push off that sequester for six months or a year. And then we see if Republicans allow a straight up-or-down vote that only requires 50 senators to vote yes, or if we have to go to a 60-vote threshold. Democrats think that they can get those seven Republicans they need -- actually they think they might be able to get up to 10 who have signaled that they could go along with something like this. But that's not the end of the road. Then even if it passes, they have got to go to the House, and that's a tricky road as well.

O'DONNELL: All right, Nancy and Major, thank you for that new information. Let's turn now to our senators that are here. Senator Durbin, you're the number two senator on the Democratic side. How far apart are you with the Republicans to reach a deal?

DURBIN: Well, I think there still is a chasm there. There's work to be done and not much time left. And it's interesting that it does come down to two very basic issues. One is, what percentage of the wealthiest people in America will pay a higher tax rate? And secondly, how many of the richest Americans who pass away should be spared paying extra for estate taxes? So from the Republican side, those remain their highest priorities, protecting the highest income individuals from tax increases and protecting up to 6,000 estates a year from paying an additional $1 million. That's what this is about. We see it differently. What's at stake as far as we're concerned are 98 percent of the American families, working families and middle- income families who shouldn't see their taxes go up on January 1st. That's our highest priority, and as the president added, the 2 million who would lose unemployment benefits immediately if we don't act to change that between now and the deadline.

O'DONNELL: So you say there's a chasm. You don't think there will be a deal today?

DURBIN: I wouldn't go that far. I have been around Washington long enough to know that it takes a deadline, it takes a lot sweat and a lot of worry, and people reach a point where they finally say, all right, let's try to find a way through this. It has happened before and it could happen again.

O'DONNELL: Are Democrats willing to raise that threshold from $250,000 to $400,000 or $500,000?

DURBIN: Well, each time you raise it, you're adding more to the deficit in terms of what we're going to face later on. Tom and I know this, we've been working -- this amazing Washington odd couple has been working on this for a long time. But each time you decide that you're going to protect some of the higher income Americans from paying more in taxes, it imposes more of a burden to cut spending, to reduce expenditures in Medicare and other areas, it becomes very problematic for a lot of working families.

O'DONNELL: Senator Coburn, what are you hearing from your Republican leader? Has he come up with a deal?

COBURN: We haven't heard anything, just minimal in terms of what's going back and forth. I think they're far apart. You know, I don't think anybody knows what's going to happen. The odds are that we've not seen the leadership on either side of aisle to solve this problem, and why would we think that we're going to see the leadership in the next 24 hours to solve the problem? But I would take issue with Dick, the characterization is, is we're the -- no matter where we raise taxes, what's going to happen to the money? We're going to grow the government with it. We're not going to reduce the deficit because we refuse to solve the bigger problems like saving Medicare, insuring Social Security, disability. We're not going to use that money to do anything except continue to grow the government. So the characterization is that we're wanting to protect -- what we're wanting to do is to make sure we have a dynamic economy, and I have no problems -- I've been out there for a long time with saying those that are making more ought to contribute more. But where does the money go? And what do you do with the money? Do you do something with the money that will actually get us further down the road and fix our ultimate long-term problem, which is we're bankrupt? And we went off the cliff two years ago when we covered 90 percent of our debt-to-GDP, and by the way, if you actually look at it the way every other country, our debt-to-GDP right now is 120 percent, not 90 percent, not 100 percent, it's 120 percent. So if you look at that, and what's ultimately going to happen -- one last fact, the average Greek citizen debt for their country is 36,000. We're at 51,000 per person in this country. We're becoming Greece, and we have a government that we're willing to pay the taxes for 65 percent of the cost of it. We need to change that. And we need both, both -- we need to do both.

O'DONNELL: Well, I'm glad you brought that up. And we're going to talk about that long-term fiscal challenges, because I want to talk with both of you about that. But we're not even there. We're just dealing with this little short-term patch that you can't even get an agreement on. What does that say about what has happened here in Washington and a real lack of confidence among the American people that the body that you guys serve in is just broken?

DURBIN: Well, it is, and it needs to change. Tom and I were part of the Simpson-Bowles Commission. We both voted for it. This conservative Republican, this progressive Democrat, we both voted for it. We worked on this for three years. There is room for compromise and room for agreement. Here's what we ran into the problem with. Forty percent of deficit reduction in Simpson-Bowles came from additional revenue, 40 percent. And when we said to Speaker Boehner, you have to come up with revenue, he said, I'll come up with a plan that protects those making less than $1 million. He couldn't sell the Republican Caucus. The only way, the only way we deal with this crisis and the deficit is on a bipartisan basis. This can't be done exclusively Democratic in the Senate, exclusively Republican in the House. It will never work.

O'DONNELL: Both of you are also part of the "gang of eight," a group of senators that many people look at and say, these are the grown-ups in the United States Senate in terms of looking at real ways to reduce the deficit. But with all due respect, why haven't you ever put pen to paper and put anything forward and rally people around your proposal?

DURBIN: Well, we put to paper many times and we have ideas that we think would be part of the ultimate answer here in terms of deficit reduction. None of it is easy, though, I don't want to mislead you. It's not easy. We floated some of the concepts and some of the ideas and they've had some traction. But get back to the premise. The premise is, if we're going to follow Simpson-Bowles as a starting point, we need revenue as a starting point. That has been a breakdown issue under the Boehner House of Representatives. And until we get beyond that, perhaps beyond the cliff, we can't have an honest discussion.

O'DONNELL: Senator Coburn, on that very issue of increased revenue, do you think that Boehner is part of the problem? Senator Reid said he's running a dictatorship.

COBURN: No, I don't think so at all. I think that, you know, the frustration in the House -- and I'm not known as a non- conservative -- is that they passed a lot of things that there hadn't been action on in the Senate, and that's the majority leader's prerogative. But if you take it and then bend it to the will of the Senate and send it back, that's how you get compromise. To not move things and not ever establish the process -- I think Speaker Boehner has done a good job with the members that he has. I think they made a mistake in not supporting the Plan B because we would have modified it and we would have sent it back and then they would have had to make a decision on it. But the basic fact is is the government is twice the size it was 11 years ago. And nobody in Washington is doing anything to fix the growth of government to where we have one that we can afford. And we're going to have to grow at 8 percent or 9 percent, if we think we can outgrow it. That isn't going to happen. So we have to do the things. We have to modernize Medicare. We have to actually achieve some real savings that won't change health care but will actually save some money.

O'DONNELL: Do you think there's an advantage to going over the fiscal cliff?

COBURN: I think there are a couple of advantages. There's a lot of disadvantages. One of the advantage will be that the American people are going to see what the real cost of their government is, the actual real cost for both the very wealthy, the very, very low will have minimal impact on. It's about $200 a year. But for the very, very wealthy -- you know, and that's one of my criticisms of the tax code. One of the things we did in the Simpson-Bowles was a reform of the tax code. What people don't realize is the well-connected, well- heeled in this country take most of the advantages of all the deductions and all the giveaways in the tax code. To reform that would redirect capital, which would generate growth, which would generate more revenue. So unless you reform the tax code in a way that will create capital formation, you're not going to do anything. Raising taxes doesn't do that.

O'DONNELL: Why should there be any confidence that you'll ever get that done? I mean, this idea you're just going to once again have a small fix, if you even get that here, you're going to continue to have the budget battles in 2013 because this won't deal with any of the spending issues. It won't deal with any of the entitlement reform, tax reform, all the hard issues. Won't even deal with the debt ceiling. You'll just have to refight all these things again in 2013.

DURBIN: I think it comes down to this. The president is committed to this. He proposed a plan to Speaker Boehner for real deficit reduction and unfortunately that negotiation fell apart. But the president's still committed. That's important. Secondly, Tom and I believe that, honest to goodness, if we come to grips with this deficit issue, and come up with a responsible, bipartisan answer to it, it will not only put our fiscal house closer to being in order, it's going to spring this economy forward. You know, take a look around the world. Where would you invest in the world? What is the best world currency? Even with all our problems it's still the U.S. dollar. Think of what it would be if there was confidence that we were dealing with our debt, that we came to grips with it on a bipartisan basis. So that will trigger the kind of growth, business creation, job creation, that I think will help us ultimately resolve our deficit issues and resolve the wealth problems we have in this country.

O'DONNELL: I want to just show both of you, sort of -- and remind our viewers, too -- a pie chart which essentially shows our federal budget and where we spend our money, because I think it's important to know where the money goes, taxpayer money. And you look at it, and just about half goes to entitlements. And then you see education in green there is just a small chunk of what we spend money on. And the defense is a large chunk as well. I have to ask you, Senator Durbin, because you have said, even in a grand bargain, that we shouldn't be tackling entitlements. How you can be serious about deficit reduction if you're not willing to take on Medicare?

DURBIN: Norah, I tackled them with Simpson-Bowles. We need to tax them again. What I said was in the last few hours before the fiscal cliff, don't make program policy changes in Medicare that you're going to live with a decade or beyond. Reflect on this. Yesterday 10,000 Americans reached the age of 65, today another 10,000, tomorrow another 10,000, and every day for the next 18 years. These people have paid in for a lifetime into an insurance program called Social Security and into Medicare. And they are expecting the benefits they paid for. And frankly, we have to resolve, as Tom said, how are we going to come to grips with the growing health care costs in Medicare and in Medicaid and still keep our promise to these people? So, yes, we need entitlement reform. Let's do it in a calm, thoughtful way, using something like a Simpson-Bowles commission on Social Security, for example, to come up with 75-year solvency.

O'DONNELL: Yes, another thing, (inaudible) the Pew Economic Policy Group did a study this week in about how much it's going to cost to make all these tax cuts permanent again, the Bush tax cuts. If you did all of them, it would be $3.1 trillion over the next 10 years. It was just the tax cuts for those making under $250,000. We're looking at additional $2.3 trillion. I mean, Democrats are willing to go along with those for under $250,000, and that's a big expense or cost or loss of revenue, however you want to look at it. How you can vote for those, extending those, and not have additional spending cuts?

UNIDENTIFIED MALE: You can't.

(CROSSTALK)

O'DONNELL: -- vote for on Monday if it gets down to Plan D, what Nancy called Plan D, where you just have to vote to extend the tax cuts, would you vote for that?

COBURN: It depends what the deal is and what's in it. A couple of points: one is, we have a government that we refuse to pay for. That's number one. Number two, the average couple in Medicare pays in $110,000 during their lifetime of taxes and takes out $350,000. Today, the people on Social Security in real dollars will take $21 trillion more out of Social Security than they paid in, $21 trillion more than they paid in. So the question is it-- it goes back to what Thomas Jefferson said-- never design a program, never create a government program with which you have not laid a tax to pay for it.

O'DONNELL: Or a war?

COBURN: Or a war. I have not voted for one defense supplemental bill since I've been in the Senate because it wasn't paid for. We didn't make hard choices. We delayed hard choices. That's what the Congress is doing now. And going back to your earlier point. The reason people are upset with Congress and especially the Senate is because we make decisions based on what is in the best interest of our politics, not in the best interest of the country. And so there's this lack of trust that we will do what's in the best interest of our country, even if it hurts us politically. And that's called leadership. And we don't see much of that. And that's not a partisan statement. That's both sides. When we look at a parochial interest more important than the interest of the nation, which is exactly the opposite of why the Senate was created in the first place, why we had a bicameral legislature, you see why we have such low esteem in the voters.

O'DONNELL: Let me turn quickly to -- you both served with Nebraska Republican Senator Chuck Hagel, who has been mentioned as a choice for Defense secretary; Senator Coburn, would you vote for him?

COBURN: I cannot vote for Chuck Hagel for --

O'DONNELL: Why?

COBURN: -- department -- just simply because of the -- some of the positions that he's taken and some of the statements that he's taken.

O'DONNELL: What about you, Senator Durbin?

DURBIN: I wouldn't say that. I think Chuck Hagel has proven his patriotism, his courage and his public service. Two Purple Hearts in Vietnam. This man deserves more than just a hearing. He deserves our respect for the service he's given our country in the military and in the Senate. And to disqualify him for statements that were made-- I think he at least deserves a hearing and an opportunity.

COBURN: That's not the only reason to disqualify him, is he does not have the experience to manage a very large organization like the Pentagon. And we've actually had-- I think Leon Panetta has done a wonderful job. I supported his nomination. He did have a lot of experience prior to coming here. And if there's a place we need great management, it's the Pentagon -- and a great manager.

O'DONNELL: Senators Coburn and Durbin, good luck today.

UNIDENTIFIED MALE: Thank you.

O'DONNELL: I know it's a busy day this Sunday (inaudible).

COBURN: We actually had breakfast together.

(LAUGHTER)

O'DONNELL: We -- I think the American people wish you luck, too, with your Gang of Eight. Thank you so much. We appreciate it.

And we'll be back in one minute.

O'DONNELL: And we're back with more from chief White House correspondent Major Garrett, and congressional correspondent Nancy Cordes. All right. You just heard the two senators there. Nancy, did that make you more or less optimistic about a deal today?

CORDES: Well, it seems like they are both sort of accepting at this point even though they don't want to preempt the process, they don't want to say right now it looks like it's not working out, but they both seemed pretty resigned to the fact that the most likely scenario is that Democrats are going to bring up their own package as early as tonight, more likely tomorrow, and then we're just going to have to see what happens. I think that there was a good-faith effort on the part of the leaders to try to get this done. It wasn't all for show. But they did need to prove that they were trying to do something. And at the end of the day, it's just too difficult for Republicans -- most Republicans to have their fingerprints on a plan that eliminates tax cuts for some people. This is just an easier way for them.

O'DONNELL: You know, what happened, Major? Because the president did signal he was willing to go up to 400,000, possibly, as a threshold, on Friday then in the briefing room, he said 250,000 again, and he suggested this plan D, as Nancy has outlined, on Monday, where there would just be an up-or-down vote. What does -- is that something that you think that ends up happening? What would the White House say about that?

GARRETT: Look, for the White House, the idea of going up to $400,000 and doing something else on federal benefits, reducing the annual cost-of-living adjustments to what is called the Consumer Price Index, the president made that concession too. Those were two large post-reelection concessions the president made. But they were in the context of a much bigger deal that had a much greater scope. As this deal shrinks before our very eyes, the president sees it as largely a political exercise. And he knows what the politics is about 250,000, that reelection threshold that he won on. So the administration, all the sources I have tell me, 400,000 was part of a larger deal. You get away from that deal, you get to this smaller patch arrangement where we don't even talk about the debt ceiling, there isn't anything to take care of the across-the-board spending cuts to the sequester, they're not interested in making those kinds of concessions. They would be willing to make them if there was a larger deal with greater scope and longer term implications for the federal deficit. Without that, they're going to play the hard politics game and say to Republicans, we dare you to go over the cliff and have and inherit most of the political responsibility for doing so.

O'DONNELL: You know, that's interesting to say, because I've always struggled with what is the political upside for the president to strike a short-term deal?

GARRETT: Well, a short-term deal only benefits the president if the understanding of the fiscal cliff is real and the consequences of it are thoroughly understood. I don't think there's a lot of evidence in the country yet that that's true. You had a couple of senators here who say it might not be such a bad idea to go over the cliff, it might concentrate the mind even further. So for the president, he reluctantly accepted this idea, the Budget Control Act, all these deadlines, all of the stuff eliminating as part of a long, tortuous negotiation to resolve the debt ceiling crisis. He now regards that entire negotiating process as largely a mistake and will never negotiate again on the debt ceiling.

O'DONNELL: Right. Nancy?

CORDES: But the benefit for everyone, Democrats and Republicans, of voting on something before the deadline, is that the stock market has now gone down five days in a row. We are now below 13,000. Nobody knows what is going to happen on January 2nd if there's no deal. The markets might not react very much. They might take a huge hit, and no one wants to be responsible for that.

GARRETT: Well, the market cares most about the debt ceiling and defaulting. If you talk to all of the big business leaders, the various organizations that have come to the White House and also gone to Capitol Hill, their largest concentration is, can we resolve our long-term deficit situation and can we get some sort of peace agreement and cease-fire on defaulting on the good full faith and credit of the federal government? That's not even on the table right now. So I think the market reaction is going to be negative even if there is a small package.

O'DONNELL: And to remind everybody what is at stake, look what will happen if a deal is not made on Monday night. On January 1st, the Bush tax cuts, all of them will expire and most taxpayers will see a rate increase. For example, if you're a couple making over $50,000, that could mean about $2,200 more in taxes. Capital gains taxes, dividend taxes, estate taxes will all go up. Also everyone will see a 2 percent cut in your paycheck, since the payroll tax cut will expire. For every American that's about a $940 decrease in your annual take-home pay. We're talking about the child tax credits, the marriage penalty fixes, other deductions could also be altered. And then on January 2nd, the stock market, as you talked about, reopens, and the federal government also reopens, which means the sequestration kicks in, $110 billion in spending cuts a year for the next 10 years. That's a 9 percent cut in defense and an 8 percent cut in domestic spending. And then we're not finished because January 7th, in that week, 2.1 million people will stop receiving their unemployment checks. All in all, economists say this could mean 3.4 million jobs lost and unemployment could reach 9.1 percent by the end of the 2013, and the U.S. will enter another recession. And yet Congress can't get anything done.

CORDES: And there is a little bit of a cushion there, because the IRS didn't expect that we would get to this point. They thought that Congress would work something out. And so it's not as if people's paychecks are going to see higher withholdings on January 1st. It's going to take a few weeks for that to kick in. So if Congress doesn't work out a deal by the deadline but can figure out something shortly thereafter, there is a chance that people won't see their paychecks...

(CROSSTALK)

O'DONNELL: All right. Nancy Cordes, Major Garrett, thank you so much.

And we will be right back.

O'DONNELL: Some of our stations are leaving us now, but for most of you we'll be back with our political "Roundtable." Stay with us.

O'DONNELL: Welcome back to FACE THE NATION. Joining us now, TIME magazine columnist Joe Klein; and former Reagan speechwriter turned Wall Street Journal columnist Peggy Noonan; plus, former Clinton press secretary Dee Dee Myers, who is now a contributor to Vanity Fair; and Michael Duffy, executive editor of Time magazine. Welcome to you all. Well, you just heard our reporting from our correspondents and the two senators. And, Joe, it sounds like surprise, surprise they haven't reached a deal yet and the idea of going over the cliff is a real one.

JOE KLEIN, TIME: Yeah, but they will reach a deal. It may not be in the next 48 hours. It will be in the next couple of weeks. And we should always remember, with all of this crisis talk going on, that what's about to happen say return to the Clinton tax rates of the 90s, which when they were imposed in 1993 everybody predicted a big recession, and what we had was a big economic boom. So there are really negative aspects to going over the cliff, especially for the very poor, and there's going to be a lot more chaos in the Pentagon and throughout the government because of contracts, but, still, it ain't that huge, I don't think. And I think they'll get the deal done.

O'DONNELL: Peggy, what about that? Who is sort of to blame for this? I mean, should -- are Republicans to blame? The president said this morning that they just can't say yes to him, that he has gone way above what he can negotiate. The Democrats have been mad at him for some of the things he's been willing to negotiate on but Republicans just can't say yes.

PEGGY NOONAN, WALL STREET JOURNAL: Well, I think, probably the big cliche of this moment in history is there's a lot of blame to go around. I think it covers a heck of a lot of people -- actually, a United States Senator, a Republican, said to me exactly those words the other day. I see there are two real problems. One was the unfortunate, sad, unsuccess of John Boehner's Plan B, in the House where he could not herd the cats. But the other part I think is you get only one president at a time. The president is presiding here. Somehow with this president, it's always cliffs. It's never deals. It's always up to the last moment. I think there is a deficit there of very broad- minded leadership, and there is certainly a deficit of trust between the congress and the president, and between the Republicans in congress and the Democrats. So plenty of fault to go around.

O'DONNELL: Dee Dee, what about that? I mean, Mitch McConnell, who is really now at the heart of making some sort of deal today about how far he can take Republicans, he says the president called him last week. It was the first time he's talked to the president since November 16. Why is -- is there something the president is responsible for that he's not reached out enough to Republicans and established that kind of trust that there has been lacking?

DEE DEE MYERS, VANITY FAIR: Look, I certainly would have liked to have see the president do more reaching out over the entirety of his first term. I think that would have been useful. It's a frustrating process. But keep in mind that the president has been negotiating with John Boehner at this point, and that was sort of the agreed upon format. He's been in conversations with him. And when push comes to shove, Boehner cannot get these deals done in his caucus. The big change is not in the White House. It's in the culture of congress. It has become an increasingly partisan congress for a lot of reasons, not least of which is increasingly polarized districts in the aftermath of redistricting. We have seen that over the decades but particularly the last decade. We have seen a real hardening on both sides. And so you have a Republican congress that's intransigent. And they're not willing to meet the president on any of this. We just saw Speaker Boehner's Plan B fail because the Republican House refused to raise taxes on anyone, and you heard both Senators Durbin and Coburn saying they're both -- they both believe that revenue has to be part of the deal. And yet that cannot get to the House.

O'DONNELL: And on that note you talked about why is Washington so partisan? People ask that question. Nate Silver of the New York Times did a study just out this week showing the makeup of the House of Representatives in 1992 he identified 103 members that were elected from swing districts, but 20 years later he's only identified only 35 such seats. And then next census won't be until 2020. So we have got to make it through another eight years essentially of this partisanship. Is that the problem, Michael?

MICHAEL DUFFY, TIME: Look at Ohio, just for a minute. They had a race for congress there, like in every other state this fall, they voted about 52-47 Republican-Democrat for its congress women and men. So you would think it maybe a 50-50 toss up of congress, maybe 60-40, something like. It's 12-3, Republican-Democrat, because of the way both sides have...

O'DONNELL: Gerrymandered districts.

DUFFY: Gerrymandered -- so that's a really good -- and John Boehner kind of controls the Ohio legislature when it comes to gerrymandering. So they all kind of reap what they've sowed here. These are almost impossible-to-defeat congressmen in their districts. So some of that is gerrymandering. But I think another thing to remember here is that we've just been through this sort of six-week, eight-week drill on this fiscal cliff. And most of the conversation has been about taxes. And the White House has done an excellent job both by dealing with the House and all the messaging both today and all through weekend about how this is about Republican intransigence on taxes. And we have seen that. There is as much gap between the president and his party in congress on spending cuts as there is between John Boehner and his caucus on taxes. There is great distance in how far that party has to go to come together to do the kind of entitlement cuts that we still need to see at some time, whether it's this month or this year or next year. There's a long way to go. They have never been as close as people think on this topic.

O'DONNELL: That's interesting as -- in terms -- you're saying in terms of messaging the White House has done a good job in keeping this in terms of...

DUFFY: Right on taxes. Because it keeps Republicans in what they call a message hole. But on spending, their own party has -- you know, every time the White House suggested a little bit of spending whether it's on, Social Security or Medicare, immediately the Democratic caucus said no.

O'DONNELL: But isn't that the thing about the Boehner deal that the president said this morning, he was willing to go father on spending cuts and even some entitlement reforms that made Democrats mad at him and he couldn't get Boehner to accept that.

KLEIN: That's right. He was willing to raise the age of eligibility for Medicare...

O'DONNELL: Which Dick Durbin opposes.

KLEIN: He was willing to change the way consumer price index is calculated for Social Security. Both of those would have been nice steps. There's far more reform that has to be done to our health care system long term, and our health care system now includes Obamacare, and there are ways to mesh Obamacare and Medicare but we're not even beginning to talk about those ways. If you talk to Tom Coburn in the corridor, he'll say, "Well, there are things we can do, but we can't do that given the state of paralysis."

O'DONNELL: So would it help break the paralysis -- we're already at the point you think it would have pushed them -- 17 months now we've been looking at this scenario and they haven't gotten anything done -- granted we were in an election. Would it help push the grand bargain that everybody thinks -- and everybody seem to know the outlines of which they are, if we went over the fiscal cliff?

KLEIN: I think so. I mean, you know, I don't mind it.

MYERS: But I mind it.

NOONAN: You mean in the air of crisis this might force action? Is that what you're saying?

KLEIN: But also, I think that the Clinton tax rates of the 1990s were an appropriate level of taxation for this country.

MYERS: But one of the reasons that was successful...

NOONAN: But what about the Clinton spending levels, you know what I mean. Tom Coburn's point about, look, whatever we do on raising taxes now will make no difference with regard to the horrible debt and deficit.

KLEIN: I think the Democrats are going to have to face the fact that fee-for-service Medicare is something we can no longer afford and it's also a really lousy way of providing medical care.

MYERS: You know, one of the reasons that the Clinton budget in '93 was successful and led to 22 million jobs over the course of the next seven years because it established rationality and predictability. It raised taxes, and it cut spending, half a trillion dollars, which is peanuts by today's standards. But nonetheless that was very tough to get passed. We had to ram it through to the last senator, begging Senator Bob Kerrey with, you know, we had and it got done. And what happened was the rest of the -- the markets respond, the rest of the world looked at us and said they can manage their affairs. The thing that bothers me about what we're about to do is we can't manage our affairs. And the public is adamantly -- is understandably frustrated and angry and dispirited by it.

O'DONNELL: And yet voted everybody back into office for the most part, voted back in the same president and the same Republican controlled House.

NOONAN: And it's ambivalent way I want to do a little commercial about stability for my former boss, Ronald Reagan. Famously, of course, Ronald Reagan would have Tip O'Neill, his great, partisan, fierce opponent Speaker of the House come in and try to work on the same sort of deals being discussed now, but Ronald Reagan also had the Republican leaders of that same House and that same Senate in. He had to mash them all together. He had to make it work. One of the surprising things about President Obama in this crisis, I think, is that he walked in as a winner. He just won an election. He had everything going for him, much higher popularity ratings than the congress itself has. The Republicans were humiliated. They had no leverage. So you get those Republicans in, you get Nancy Pelosi in, and you shake it up. You give the Republicans something so that they can save face. You make them raise taxes. At the end of the day, nobody's happy, but stability occurs. And the thing goes forward. I am continually surprised by President Obama that he lets it become these dreadful enervating dramas.

KLEIN: Could I just say that when Ronald Reagan was president and everything Peggy just said is absolutely true...

NOONAN: I'm so glad.

KLEIN: When Ronald Reagan was president, Grover Norquist was in diapers and Rush Limbaugh was a disk jockey, I think, in St. Louis. You have had a hermetically sealed culture grow up on the right in this country that as we saw during the last election, is removed from reality and is extreme in the most egregious way.

DUFFY: And you don't have to go all the way -- it's much further than that. In 19 -- When Bill Clinton passed that budget deal, he didn't get a single Republican vote. And there hasn't been a Republican vote for tax increases in 20 years, and if the deal falls apart today, which I think it probably will, the reason will be is there will be no Republican votes, maybe even in the senate, much less to the House for a tax increase, which is what they're talking about.

MYERS: And in the short term there's no political penalty to pay for that, which back to your point, I guess, so that we re-elected both a Democratic president and -- because gerrymandering, and so there's no political price to pay. And so members of congress can vote in the best interest of their constituents and not the best interest of the country.

O'DONNELL: All right. We're going to take a short break. And when we come back we're going to talk about 2013 and what the new administration will look like. And whether they will be able to get anything else done on issues like immigration or gun control measures. We'll be right back with more on our panel. Stay with us.

O'DONNELL: And we are back with our panel. Let's talk about 2013. No movement on the fiscal cliff as of yet. And the president said today one of his top priorities in the new year will be immigration reform. I want to go around the table quickly. Can he get something like that done?

NOONAN: If he -- if the fiscal cliff process that he is involved in does not poison his relationship with the Republicans in congress, perhaps. But if things get very bad now with the Republicans in congress, maybe not.

O'DONNELL: Joe?

KLEIN: I think that one of the clearest lessons from the last election was the Republicans have to begin to deal with the growing Latino community in this country, and that there will be plenty of Republicans ready to vote for immigration reform.

O'DONNELL: And Michael, the president also said today he is going to put his full weight behind some gun measures that would keep guns out of the hands of the mentally ill. Can that pass?

DUFFY: I don't know. One of the most interesting public opinion trends in the last decades is that support in America for gun rights and same-sex marriage has increased, about the same rate, about 16 points in about eight years. It's really interesting.

NOONAN: Very libertarian.

DUFFY: Yes, exactly. Neither Democrats or Republicans take both tricks there. It's a libertarian streak in the public that seems to be -- that's harder than it was for a few years ago for the president. Joe Biden is working on a plan. It will take a lot of blocking and tackling and it won't happen in a year I'm guessing.

MYERS: But I think there is some possibility that keeping the guns out of the hands of mentally ill is some place you can find a compromise. An assault weapons ban is much harder, especially as Senator Feinstein is going to impose it has -- you know, a more narrow definition -- a broader definition, actually, of what an assault weapon is. It was hard enough to get that through in '94, when the definition was pretty squirrelly. If you tighten that up, it's going to be nigh on impossible.

O'DONNELL: President Obama is going to have a big change in his cabinet, most likely, in 2013. And I've been interested in this. If you look at the big four cabinet positions right, Justice Department, Treasury, Defense, and State, all of those are likely leaving at some point in the next year. Is that, Michael, a concern at all for President Obama that there could be that many top people, especially in national security roles -- that are moving on and you'll have new there?

DUFFY: Oh, it's usually disrupting to have to find replacements and then in this environment try to get them confirmed. I think some folks are not leaving because it's too disruptive. I think Eric Holder will stay at Justice because that's a fight maybe they don't want to have right now. It's a little unclear what will happen in some of the others. We thought we would have some of these announcements already. He's had, obviously, a desire to have some people take these jobs. He's had to walk back. So this is a complicated part of what's going on.

O'DONNELL: I want to ask you, Joe, about the Defense Department, because you have always covered the Pentagon and done lots of trips with our military leaders. And we see Senator Hagel who is sort of hanging out there, if you will, with not even being nominated but as -- it's out there that he's a preference of the president's. And you just heard Senator Coburn say this morning he could not vote for him. Senator Graham say he could not vote for him. The Democrats say they would vote for him, but the Republicans won't support a fellow Republican.

KLEIN: Well, I think that the Hagel nomination signifies a much larger fight. Most of the opposition is coming from the Israel lobby, not to put too fine a point on it. They are upset about statements he's made in the past which I think are fairly moderate, main stream statements but they don't like it. AIPAC has been out there make phone calls against him. And I think if the president gives in on this, it if he nominates Hagel and Hagel is still a possibility as far as I understand from the White House, if he gives in on this, it's going to empower neoconservatives who have been wrong about everything in foreign policy for the last decade, when it comes to making a deal with Iran later in the year, which is a real possibility. They're going to try and block any kind of arrangement that we make in terms of a nuclear deal.

O'DONNELL: Speaking of cabinet changes, we all know that Hillary Clinton is moving on. We've not seen her for three weeks. Has anyone heard how she's doing? And what's next for Hillary Clinton? Dee Dee?

KLEIN: You get that question, Dee Dee.

(LAUGHTER)

MYERS: No, you know, she was very sick with the flu, fell and hilt her head, as we all know, and suffered a concussion, which was pretty serious and had real repercussions for her. So she was really out of -- you know, incapacitated -- not incapacitated that's too strong a word -- but she was really suffering from the effects of having hit her head. And so glad to see that she's returning to work on Monday -- or I guess right after the holiday. And it was too bad to see some Republicans taking shots at her, that was really cheap under the circumstances. What does she do next? That's the -- you know, $63 million question -- whatever she wants is the answer. Clearly she wants to continue work on behalf of women and girls globally. She has done a phenomenal job raising that issue. And she said that is the global civil rights issue of the century. She's going to continue to play a role on that. And then of course we'll all sit around and wait for the next however long Hillary wants us to wait to decide whether or not she runs for president. That's obviously a live option for her and something she wants to take her time to think about.

O'DONNELL: Michael?

DUFFY: Everything she said. I think she'll run.

KLEIN: She's running.

O'DONNELL: She's running, she's running.

NOONAN: Will she testify on Benghazi? I mean, where does that all stand?

MYERS: I think she will, yeah.

KLEIN: I'm sure she will. I mean, there is no scandal with Benghazi. This is one of the most trumped up, ridiculous exercises that I have ever seen.

NOONAN: Joe, then perhaps she should have come forward some time ago and talked in public about Benghazi.

KLEIN: They were doing -- they were doing a study. They were doing a study within the department, which is pretty conclusive about what happened there.

MYERS: And she accepted all the recommendations from the study.

KLEIN: And she accepted all of the recommendations. What you have here say very angry Senator John McCain who was conducting a vendetta against Susan Rice because of things that she said about him during the 2008 campaign. Several of his pals, like Lindsey Graham have joined on top of it. And from my knowledge of the State Department and having a son who is a foreign service officer who has served in difficult places, this sort of situation could have happened anywhere.

O'DONNELL: Let's turn now, since this is the last show of 2012, we get to look forward and predictions for 2013. Michael, you have a prediction for what...

DUFFY: This is not going to strike anyone as terribly brave. But Chris Christie will run for governor. He will win as governor of New Jersey.

O'DONNELL: Oh, going on a limb there.

DUFFY: Yeah, I'm going far. But then he will turn around and run -- start running for president.

O'DONNELL: And what about Cory Booker's chances in the Senate?

DUFFY: I can't comment. That's just too far. That's a...

(CROSSTALK)

O'DONNELL: OK, got you. Dee Dee?

MYERS: I -- we have already talked about this a little bit, but my prediction was that an assault weapons ban will not pass, even though one of my former boss, Senator Feinstein, will make a valiant effort as will Senator Biden, but I'm hopeful other restrictions on gun ownership, particularly for people with mental disabilities will.

NOONAN: I think -- oh, sorry, was that me...

O'DONNELL: Yeah, sure. Ladies first, right?

NOONAN: One of the-- one of the big stories of the coming year after we get past the anybody stuff we're in right now is will-- will be the sometimes awkward, sometimes herky-jerky, attempt of the Republican Party in Washington to come to terms with the meaning of the 2012 election, to come to terms with the demographic and cultural changes that have swept the nation they wish to lead. This will evolve over the next few years. It's going to be one of the great things to watch.

O'DONNELL: You know think that will happen this year?

NOONAN: I think it will begin this year or boy they're going to be in trouble.

(LAUGHTER)

O'DONNELL: Joe?

KLEIN: Well, Hafez (sic) al-Assad is going to fall in Syria, and when he does, it is going to be a huge mess. It is -- it's-- there's not just going to be another government come in. There's going to be consideration of whether the borders of Syria, Lebanon, Iraq are the actual borders. Whether those straight lines drawn in the sand by Europeans 100 years ago are going to stand. This is going to be a huge, violent mess.

O'DONNELL: All right. And, Joe, what has happened in the last couple of weeks, to bring everybody up to date, about -- makes it more likely Assad will fall in the next year -- in the next probably six months or so?

KLEIN: Well, I think he's -- you know, he has had serious defections. The rebels, who are predominantly Sunni and who are majority of the country, are getting really strong support from other Sunnis in the region. And none of his neighbors like him anymore.

O'DONNELL: All right. We will be right back with our "FACE THE NATION Flashback."

O'DONNELL: For this week's "FACE THE NATION Flashback," we thought we would take a look back at some of the more memorable moments from FACE THE NATION this year.

JOE BIDEN, VICE PRESIDENT OF THE UNITED STATES: How are you, buddy? It's great to see you. Governor Romney is a pretty flexible guy in his positions.

BOB SCHIEFFER, HOST: You know, we've been trying for a long time to get Mitt Romney to come sit down at this table. Now you're, obviously, a friend and an adviser. You make a good case for him. But I'd like to hear him make the case. Would you put in a word for us and say, you know, they'd love to see you over there at FACE THE NATION if you'd accept their invitation?

GOV. CHRIS CHRISTIE (R), NEW JERSEY: You bet I will.

SCHIEFFER: Where do you think this election is right now?

BILL CLINTON, 42ND PRESIDENT OF THE UNITED STATES: I think that the president is winning, and winning in the swing states.

SCHIEFFER: We would love to have Governor Romney on FACE THE NATION.

ERIC FEHRNSTROM, ROMNEY CAMPAIGN ADVISER: Well, thank you, Bob, for having me.

SCHIEFFER: Thank you. And what about Governor Romney?

O'DONNELL: Would you consider a vice-presidential nomination...

REP. PAUL RYAN (R-WI), FORMER VICE-PRESIDENTIAL CANDIDATE: No. It's just something I'm not even considering right now. I'm so focused on my job in Congress.

O'DONNELL: Then we'll talk with Republican vice-president hopeful Paul Ryan. It's a trillion dollars in defense spending and you voted for it.

RYAN: No, Norah, I voted for the Budget Control Act.

O'DONNELL: You voted for it. That includes defense spending.

RYAN: Norah, you're mistaken.

SCHIEFFER: Attack in Libya takes the life of our ambassador there and three other Americans.

SUSAN RICE, U.S. AMBASSADOR TO U.N. We do not have information at present that leads us to conclude this was premeditated or pre- planned.

SCHIEFFER: Are you saying that the administration deliberately misled the American people to make it look as if terrorism is -- is not as much of a threat as apparently it is?

SEN. LINDSEY GRAHAM (R), SOUTH CAROLINA: Either they are misleading the American people or are incredibly incompetent.

SEN. JOHN MCCAIN (R), ARIZONA: It is now the worst cover-up or incompetence that I have observed in my life. Somebody the other day said to me, this is as bad as Watergate. Nobody died in Watergate.

SCHIEFFER: Let me ask you, when did the two of you realize this was a big story?

CARL BERNSTEIN, VANITY FAIR: Earlier than you might think. We had found out there was a secret fund that paid for Watergate and these other illegal activities about eight weeks after the break-in, and I felt this chill go down my back, and I said to Woodward, oh, my God, this president is going to be impeached.

SCHIEFFER: Do you think we're ever going to see him on one of these Sunday morning interview shows? I know he does FOX, but we'd love to have him some time.

ED GILLESPIE, REPUBLICAN POLITICAL STRATEGIST: You know, Bob, the fact is that we're going to take our message to the American people.

SCHIEFFER: Just remember, candidates, shuck the tamale, then eat it. You're going to really like tamales. We caught up with him in Lebanon, Pennsylvania. Governor, thank you so much for joining us today. We really appreciate it.

O'DONNELL: And just to show persistence paid off, Bob did get the first Sunday morning interview with Mitt Romney. And we will be right back.

O'DONNELL: And that's all the time we have for today. Bob will be back next week, but I'll see you tomorrow on "CBS THIS MORNING." Happy New Year, and thanks for watching.