The following is a rush transcript of the May 22, 2011 edition of "Fox News Sunday With Chris Wallace." This copy may not be in its final form and may be updated.
CHRIS WALLACE, ANCHOR: I'm Chris Wallace.
A big name governor passes on a run for the White House. While a compelling new face gets in.
An unlikely Republican adds buzz to the GOP presidential race, citing his lack of political experience as a strength.
(BEGIN VIDEO CLIP)
HERMAN CAIN, REPUBLICAN PRESIDENTIAL CANDIDATE: Most of the people that are elected office in Washington, D.C., they have held public office before. How is that working for you?
(LAUGHTER)
(END VIDEO CLIP)
WALLACE: Former businessman Herman Cain sits down for a "2012: One-on-One" interview -- only on "Fox News Sunday."
Then, mounting debt and an economy stuck in neutral and no signs of progress on Capitol Hill.
We'll get a read on what kind of deal the GOP will accept when we're joined by the GOP's top Republican Mitch McConnell.
Plus, the president lays out his vision for new Middle East, but alienates Israel. We'll ask our Sunday panel if the Obama plan will help or hurt the peace process.
All right now on "Fox News Sunday."
And hello again from Fox News in Washington.
Earlier Sunday morning, we learned Indiana Governor Mitch Daniels, a favorite of many establishment conservatives, will not enter the 2012 Republican race for president. Daniels cited family considerations in making his decision.
But on Saturday in Atlanta, Herman Cain, the former CEO of Godfather's Pizza, made it official. He is running for the GOP presidential nomination.
As part of the continuing series, "2012: One on One," we are joined by Mr. Cain for his first interview since becoming a candidate.
Welcome to "Fox News Sunday."
CAIN: Thanks, Chris. It's my pleasure.
WALLACE: You ended your announcement yesterday talking about what will happen to America once you're elected.
(BEGIN VIDEO CLIP)
CAIN: We will al be able to say -- free at last! Free at last! Thank God Almighty, this nation is free at last again!
(END VIDEO CLIP)
WALLACE: Mr. Cain --
CAIN: Yes?
WALLACE: -- free from what?
CAIN: Free from rising debt. Free from legislation that's being forced down the throat of the American people like Obamacare. Free from an arrogant disregard of the American people as it relates to things that the people want. Free from a stagnant economy when, in fact, we have the ability to grow a lot faster if we lower taxes, if we get rid of the -- lower the capital gains tax.
Suspend taxes on foreign repatriated profits, providing direct stimulus such as a real payroll tax holiday for employees and employers. And free from dependence on foreign oil, which is only going up because we don have a real energy independence plan.
WALLACE: All right. Let's drill down, that is the whole point of you being here today. Drill down on some of you views.
On the debt limit, you say: don't make a deal. Even John Boehner who says: let's cut spending at least as much, dollar for dollar, as we raise the debt limit. You say that is nothing but a stall tactic.
CAIN: Yes, it is.
WALLACE: Let's take a look.
(BEGIN VIDEO CLIP)
CAIN: Raise the debt ceiling, pay for the stuff that's critical, and then the other things are going to have to be forced mandatory cuts.
(END VIDEO CLIP)
WALLACE: So, under the Cain plan, you would pay our Chinese creditors first --
CAIN: Yes.
WALLACE: -- while substantially cutting, sharply cutting, services, programs for Americans?
CAIN: Yes. But not -- pay the debt, pay the interest on the debt first. Make sure we take care of our military and their families. Thirdly, make sure the people that are getting paid for Social Security checks that they get paid. And then, fourth, make sure that people's Medicare bills get paid.
Then, you look at everything else, and that's where you start cutting. You don't start cutting until after we take care of those things. Now --
WALLACE: That's going to mean a lot of serious cuts for people while paying we're paying the Chinese creditors first.
CAIN: Yes. If we don't pay the Chinese creditors first, the amount of interest we have to pay will go up. I am sure that there are penalties in there if we don't pay it on time.
Now, here is the corner, quite frankly, that Representative Boehner and others have painted themselves into. If you were to do those four things, you need to have done it at the beginning of this crisis, before getting this close. What has happened now is that they have allowed the timing to get so close to the end, they may not be able to do the Cain plan for the four things that I talked about. They may have allowed themselves to get in a corner where they may be forced to and I still call, they should have -- they should have seen this coming, which they did. But they didn't move fast enough.
WALLACE: But even your plan --
CAIN: Yes.
WALLACE: -- and let's say, even if they had been able to take care of this sooner, Federal Reserve Chairman Ben Bernanke says that your idea, you're not the only one offered it, is too dangerous.
This is the way he put it -- "Even if the debt is paid, there's the issue of market contest and how the market would respond to risk of default or even the default on non-debt obligations."
Bernanke says it will end up just as you suggested, it will end up costing the U.S. more, even if you pay the debt, it's going to end up costing the U.S. more to borrow from other countries which will only increase the deficit. And that's going to filter down to higher interest rate, whenever you want to get a new home, buy -- got a mortgage or get a new car loan.
CAIN: He is absolutely right. But I also think raising the debt ceiling is also going to be a negative against the market confidence. They're caught between a rock and a hard place, quite frankly, now. And the reason that they got in between this rock and a hard place, they waited too long to deal with the issue. That's now compounding the problem, not helping problem.
WALLACE: Yes. But Bernanke is saying, at this point, you've got to make a deal. And you've got to make a deal and raise the debt ceiling. And if you don't and you just pay the debt off, that still going to frighten the market.
CAIN: And I would agree with him. I agree --
WALLACE: So, you just said the Cain plan is wrong.
CAIN: No, I didn't. I said that they allowed themselves to get in a hole. They allowed themselves to get between a rock and a hard place. What I said about identifying those four things and pay those first, if they had done this a year ago, anticipating this, it would have worked. He's right.
WALLACE: But is the Cain plan right or wrong now?
CAIN: The Cain plan can't work now. It cannot work now, simply because they waited too long. And this is part of the problem. They wait until a problem is at a disaster point and then go to the American people and say, we have no choice.
That's not leadership. That's not good decisions.
WALLACE: All right. Let me ask you about another of your ideas.
CAIN: Yes.
WALLACE: And, actually, we talked about this during the South Carolina debate. You say abolish the IRS, abolish the income tax, and replace it with a fair tax.
CAIN: Yes.
WALLACE: A national sales tax of 23 percent.
Now, first of all, according to the way this plan is laid out, people would have to pay a national sales tax on almost every new good or services. You buy a new home.
CAIN: Right.
WALLACE: You a mortgage payment. You pay rent. You've got to pay 23 percent national sales tax. You buy food. You get medical care. You got to pay a 23 percent national sales tax.
CAIN: Right.
WALLACE: Are you OK with that?
CAIN: Of course, because also say this, Chris, every time you describe it -- it replaces all federal income taxes. It replaces the payroll tax. In other words, that 23 percent will collect the same amount of tax revenue from federal income taxes, corporately and personally. It will also collect the amount of money that's being raised through the payroll tax. Such that when a person gets their pay stub, you won't have a federal tax deduction, you won't have a FICA deduction. It will be included the 23 percent you pay.
Now, part two of that, in addition to being a replacement tax, not on top of anything, in addition to that, there is a prebate provision that's collected in the 23 percent, such that every family will get the sales tax on basic necessities as calculated with a formula, before you have to go to the store, before you have to go to the grocery store.
WALLACE: Here's the problem with that. President George W. Bush -- he had a commission on tax reform in 2005.
CAIN: Yes.
WALLACE: They looked at the fair tax. They said it won't work. Here's why they said it won't work -- they said that to create the revenue that you're talking about, it would have to be a 34 percent tax rate. Not 23 percent.
And with the prebates you just talked about, they say it would benefit low and high-income taxpayer. But it would raise taxes. It would raise taxes for the entire middle class -- anyone making between $15,000 and $200,000.
CAIN: Chris, they were dead wrong. Here's what happens.
WALLACE: This is President Bush's --
CAIN: I know this is his commission. When I heard the commission make that assessment of the fair tax, I was screaming. Other people who knew something about the fair tax was screaming. We never got an opportunity to explain.
What they did is that they changed some assumptions in the actual bill. This is why they come up with these outrageous numbers.
So, if you change the assumptions of what's in the bill, you have come up with some outrageous numbers like that in order to kill it and defeat it.
Go talk to the people -- talk to former Representative John Linder. If he had been given an opportunity to refute it, he would have said exactly what I said. Talk to Leo Lindhbeck (ph), one of the gentlemen who have to the research on it. There are a lot of people who say -- look, if you do it according to the assumption in the legislation H.R. 25, you don't come up with that. They changed the assumption.
WALLACE: All right. Let's turn to foreign policy. You say that President Obama threw Israel under the bus -- your words -- with his plan this week --
CAIN: Yes.
WALLACE: -- as a base line, Israel to return to the 1967 borders.
WALLACE: You say the Cain doctrine
CAIN: Yes.
WALLACE: -- the Cain doctrine is: don't mess Israel. You mess with Israel, you are messing with the U.S.
CAIN: Yes.
WALLACE: Question: what would President Cain offer the Palestinians to make peace?
CAIN: Nothing. Because I'm not convinced that the Palestinians are really interested in peace. If the Palestinians come to the table with Israel, with a genuine offer that the two of them can sit down and negotiate, the United States would, in fact, try to facilitate that discussion.
But if we look at history, it has been clear that the Palestinians have always wanted to push Israelis and push Israel for more and more and more. I don't agree with that. I respect Prime Minister Benjamin Netanyahu for taking a stand and saying they cannot give that up.
Secondly, it's Israel's decision, not President Obama's decision to where the borderlines ought to be.
WALLACE: Where do you stand on the right of return?
CAIN: The right of return? The right of return?
WALLACE: The Palestinian right of return.
CAIN: That is something that should be negotiated. That is something that should be negotiated.
WALLACE: Do you think the Palestinian refugees, the people who were kicked out of the land in 1948, should be able or should have any right to return to Israeli land?
CAIN: Yes. But under -- but not under Palestinian conditions. Yes. They should have a right to come back if that is a decision that Israel wants to make.
Back to -- it's up to Israel to determine the things they will accept. Prime Minister Benjamin Netanyahu made it real clear in his statement following the statement that President Obama made. They are wiling to make some concessions. They are willing to give on a lot of things. They are willing to be compassionate.
I don't think they have a big problem with people returning. The issue is there are some things that they simply do not want to give in on.
WALLACE: We have been at war in Afghanistan for almost 10 years. And yet you say -- and you say it quite proudly -- you have no plan for what to do in Afghanistan. You'd have to wait until you got into office, until you met with the experts, until you met with military officials and then you decided.
Don't you owe to people who are thinking of voting for you to give them some idea about what you would do about a major U.S. military involvement in Afghanistan?
CAIN: I do. And here's what I owe them -- I owe them the right approach to the right decision such that we're not there 10 more years.
WALLACE: So, what is the right approach?
CAIN: The right approach is: the day I'm elected president, I will start on that plan such that the day I was sworn in, I will be able to implement the plan.
WALLACE: But that doesn't tell anybody what you're -- I mean, do you support counterinsurgency or counterterrorism?
CAIN: Chris, let's go back -- let's go back -- let's go back to the fundamental question. We've got to work on the right problem. I think it is disingenuous to tell the American people what I would do when I don't have the intelligence information. I don't have all of the factors that are affecting this particular situation.
I owe the American people a responsible decision and a responsible plan. And I don't think any candidate can responsibly say what they would do if they are elected president.
WALLACE: All right. Finally -- since we only got about a minute left. I want to ask about pluses and some minuses for your campaign, because they're literally quite striking. And let's put this poll.
In the daily Gallup poll, only 29 percent of Republicans even know who you are.
CAIN: Yes.
WALLACE: But you have the strongest support among those who do recognize you -- 24 percent. On the other hand, you have been campaigning for months. Your Hermanator PAC raised $16,000 in the first three months of this year. At the end of March, you had $13 cash on hand. Question: is your campaign broke?
CAIN: No, it's not. The Hermanator PAC, we ceased that at the end of January -- at the end of December. So, the people who are looking at the Hermanator PAC account, that's inactive account. We opened up a new one called Friends of Herman Cain which we will file July 15th, according to the FEC.
WALLACE: So, can you tell us how much money you got in that?
CAIN: I could, but I won't, Chris, because I don't want my competition to know. But I do, I can tell you -- we are not broke. We are not broke. The PAC account ended December. That's why it shows $13.
Friends of Herman is doing just fine. But we need more.
(LAUGHTER)
WALLACE: We all need more.
Mr. Cain, we want to thank you so much for coming in today.
CAIN: Pleasure.
WALLACE: Always a pleasure to talk with you. Please come back. And good luck on the campaign trail, sir.
CAIN: Thanks, Chris. I've enjoyed it. Thank you.
WALLACE: Up next: the Senate's top Republican on the nation's debt and president's new policy in the Middle East.
(COMMERCIAL BREAK)
WALLACE: Joining us now, the Senate's top Republican, Mitch McConnell.
And, Senator, welcome back "Fox News Sunday."
SENATE MINORITY LEADER MITCH MCCONNELL, R-KY.: Pleasure to be with you.
WALLACE: Let's start with foreign policy. This week, President Obama offered a new plan for the Middle East that sets a baseline -- the idea that Israel should go back to the 1967 borders. But in the Oval Office on Friday, Israeli Prime Minister Netanyahu flatly rejected that.
Question: is President Obama wrong?
MCCONNELL: Well, he certainly I think made a mistake in this comprehensive speech about the Middle East. I mean, everybody knows that the '67 lines are just not tenable. There has been a lot of movement around in the last 44 years. Everybody knows the Palestinians are not in the end going to have a right to return. It wouldn't even be a Jewish state if that happened. And everybody knows that Jerusalem, in the end, is not going to be divided. So, I think the old maxim that the parties to the conflict need to be the parties to the settlement still holds. The U.S. ought not be trying to push Israel in to a deal that's not good for Israel.
And I think the president made a mistake. I think he's been sort of trying to back-track since then, as well he should.
WALLACE: Some Senate Republicans say they're going to introduce a plan, a resolution on the Senate floor, opposing the Obama plan. Will you push that for a vote in the Senate? And if this isn't the right answer, how should this country reach out to the Arabs, in the new changing world of the "Arab Spring"?
MCCONNELL: Well, look, this is the very worst time to be pushing Israel into making a deal. You got all kinds of uncertainty -- Egypt, Syria.
And, you know, I think looking at it from Israel's point of view, they're going to expect and have a right to expect at the end of any such settlement, diplomatic recognition from countries like Saudi Arabia and Syria. Could anybody envision that happening today? I don't think so.
I mean, there are times when a peace agreement would make sense and times when it wouldn't. And it seems to me the Israelis probably correctly understand, with all of this turmoil going on in so many of their neighboring countries, this is the very worst time to be making a final settlement with a group, by the way, that now includes Hamas.
I mean, Fatah and Hamas have now gotten together. Hamas is not even in favor of Israel's existence. How do you a deal with a group like that?
WALLACE: I want to touch briefly on two other countries and then we'll get to some domestic issues. There's a request pending in Congress for another $4 billion in aid to Pakistan. Do you support any cuts in funds to tell the Pakistani officials we're not going to put up with them continuing to play a double game with our enemies?
MCCONNELL: Well, let me tell you what I -- what I don't support, is complete disengagement from Pakistan. I went down to Fort Campbell last Friday morning to reach some of the elements in the 101st who are coming back from Afghanistan. I had an extremely interesting conversation with a brigade commander who told me that at their level, at the tactical level, the cooperation with the Pakistan military was excellent. They were on both sides of the border, communicating back and forth, going after terrorists together.
So, Pakistan is very much a mixed bag. You have elements in the intelligence service that seem to be on our side and some who are on the other side -- elements in the government, elements in the military. It is a mixed back. But it is a country with nuclear weapons.
And I don't completely pulling back from Pakistan is a good idea.
WALLACE: Specifically, would you support any cut in the $4 billion in aid?
MCCONNELL: Well, I haven't decided that yet. But I don't think disengagement from Pakistan is in America's best interest.
WALLACE: OK. One other country -- U.S. operation in Libya passed a 60-day mark on Friday. And under the War Powers Act, the president either has to get a renewal of support from Congress, or he has to start pulling out troops. Are you going to do anything about that?
MCCONNELL: I don't know what we're going to do on the War Powers Act. The administration is going to have to decide whether it thinks it was triggered and we'll have to respond to that. Senator McCain has been to Benghazi as I think everyone knows. He is keeping us posted on what he thinks ought to be done.
And, frankly, it's a bit confusing now and we'd like see the administration clear it up.
WALLACE: Senate Democratic Leader Harry Reid says he intends to bring up this coming week a vote on the House Republican budget, including Paul Ryan's plan to overhaul Medicare, and turn it in to a voucher system within 10 years.
You say you're going to vote for it, but you also say you're not going to push any of your Republican colleagues. Is that because of bad politics? MCCONNELL: Look, let me tell you -- in the Senate, we have other budgets that Republicans are pushing. Pat Toomey of Pennsylvania has a very thoughtful 10-year proposal he likes. He, like I, also support the Ryan budget. My Kentucky colleague Rand Paul has a budget.
What I've said to my members are that we're not going to be able to coalesce behind just one. We may well vote on the Ryan budget. I'm going to make sure that the Democrats get to vote on the Obama budget, which the president -- which my counterpart, Harry Reid, thought was terrific back in February. So, there will be votes on several different budgets in the Senate.
Candidly, Chris, none of these budgets are going to become law. And the real action on deficit reduction is down at the White House and the meetings headed by the vice president.
WALLACE: I want to play clip -- get a drink of water there. I want to play a clip from an ad that a liberal group is running right now, which shows a what seems to be a Paul Ryan lookalike pushing a granny in a wheelchair. Here it is.
(VIDEO CLIP PLAYS)
WALLACE: Well, I wouldn't say it's subtle. But, question -- what do you think of the Ryan plan on Medicare?
MCCONNELL: Well, what Paul has done here is implement a premium support proposal at the end of the period, which is a very sensible way to go to try to save Medicare. I think what we need to be talking about here is Medicare is in trouble. Several of the president's own cabinet members who make up the trustees of Medicare and Social Security declared last week that we've got to change Medicare and change it quickly. The president would do that, too. He would do it with a board to ration health care.
So, let's just stipulate that nobody is trying to throw grandma off the cliff. Medicare is in serious trouble, serious trouble, and soon. The president would ration care, which will adversely impact grandma.
What Paul Ryan would do is to empower grandma in the private market, to shop and get the best possible deal. But regardless of which approach you take, Medicare is going to change or it won't be there for anyone.
And so, it's time for an adult conversation about that. And that's going on in the group headed by the vice president, where to get my vote on raising the debt ceiling -- I can only speak for myself -- we're going to have to have significant changes to both Medicare and Medicaid.
WALLACE: I want to get back to Medicare, because it is a big issue. It's a hot issue. Newt Gingrich stepped in it last week.
Do you support the idea of turning Medicare -- I think you're exactly right. Everybody would agree that it's going to change. And there are going to be cutting of hundreds of billions of dollars either way.
Do you support the Ryan concept of turning Medicare from a fee- for-service plan to voucher plan? Which, quite frankly, under the Congressional Budget Office analysis, the nonpartisan CBO, means that in the long run, seniors will end up paying more out-of-pocket for their health care.
MCCONNELL: Paul Ryan would say it's not a voucher plan. It's a premium support plan.
WALLACE: What's the difference?
MCCONNELL: He says it is different. The point is this, Chris -- Medicare is going to change. Under the president's plan, the government would ratchet down health care for grandma. Under Paul Ryan's plan, it would be premium support and options, like we currently have.
WALLACE: I understand. But you're not willing to say you support the Ryan plan?
MCCONNELL: Well, what I'm willing to say is, we're going to have to change Medicare and it's going to happen soon. It's going to happen in connection with talks with the vice president that are going on right now and it's going to happen in connection with raising the debt ceiling which the president has asked to us do.
And all of these budgets are interesting to discus and debate, but none of them are going to pass. What is going to pass at some point is something, Chris, related to Medicare and Medicaid, in connection with raising the debt ceiling this summer.
WALLACE: All right. Well, I want to talk now, finally, about that. Because the country has a little over two months until, according to Treasury Secretary Geithner, we will flat run out of money, he won't able to shift it around anymore. And we'll have reached the final point in which we go into default.
The gang of six, the six bipartisan senators, is deadlocked. In fact, it's now the gang of five, because Tom Coburn dropped out. Your man on the Biden panel, Vice President's Biden's panel, says that, so far, all they're playing is small ball. That's what he said here last week, a couple of hundred billion dollars.
Realistically, what are the chances for a deal before August 2nd?
MCCONNELL: Well, there will have to be a deal. And let me just say what it would take to get my vote, for example. I'm just one member of the Republican conference. But to get my vote, we have to do something significant both short-term and long-term. And long-term means Medicare and Medicaid, which is why I keep leading you back to this discussion.
This is the one that is going to create law. It's actually going to be signed by the president of the United States. It's going to have to make a difference. Look, we got a $14 trillion debt. It's big as our economy. We look a lot like Greece.
And then we got all these unfunded liabilities, over $50 trillion of them, in Medicare, Medicaid, and Social Security. The president's own cabinet member said a week ago, both Social Security and Medicare were in trouble -- Medicare sooner.
We've got to act. We've got to act now. And the time to do it, the opportunity to do it is in connection with the debt ceiling.
The fact that they've only dealt with some peripheral matters in the discussions right now doesn't mean that's where it's going to end up. This is going to have to be a significant and credible deficit reduction effort. It's going to have to -- Standard & Poor's is going to have to look at it and say, well, these guys are going to take us in a different direction -- in order to get the votes, Chris, to raise the debt ceiling.
WALLACE: OK. So, you basically said the Democrats are going to have to give in this. They're going to have to agree, because -- which is politically tough for them to substantial cuts in domestic spending programs, including entitlement, which they have resisted over the years.
What are Republicans going to have to give? Because I think you would agree -- to get a big agreement to avoid going into default, it's going have to be a bipartisan compromise.
MCCONNELL: Yes. It will have to be a bipartisan compromise. I'd outline what it would take to get my vote.
WALLACE: But you said what the Democrats are going to have to give. What are you going to give?
MCCONNELL: I don't know what the Democrats have to give in the end. I can tell you that the Republicans control the House. We have a robust minority in the Senate.
We believe that we have a spending problem, not a taxing problem. We have this problem because we spend too much, not because we tax too little. And you cannot get anywhere if you start raising tax rates.
You know, the way to grow out of this is to get the economy going.The worst thing you can do and the president conceded that back in December when he agreed with myself and others, to continue the current tax rate.
WALLACE: Now, you say tax rates. And, you know, I listen to what you say because everything you say is pretty carefully formulated. What about more revenue? For instance, taking away tax deductions, tax breaks, tax subsidies?
MCCONNELL: We're not going to do the deal here this morning. It's impossible. I know you'd like us for us to structure this deal. But the president is --WALLACE: I think you and I could work it out.
MCCONNELL: The president is not sitting here right now and he is the only most important person in America because only he can sign something into law. Only the president can sign something into law.
And all of these discussions that are going on and all these budgets that are being talked about are interesting, but the president is only at the table one place. And that is in the deficit reduction talks.
And something significant going to come out of that, frankly, or you're not going to be able to get the votes to raise the debt ceiling.
WALLACE: Senator McConnell, we're going to have to leave it there. You can't blame me for trying.
MCCONNELL: You tried.
WALLACE: It's always a pleasure. Thank you. Please come back, sir.
MCCONNELL: Thank you.
WALLACE: Up next, our Sunday panel on the tense on-camera standoff over U.S. policy between President Obama and Israeli Prime Minister Benjamin Netanyahu.
(COMMERCIAL BREAK)
(BEGIN VIDEO CLIP)
PRESIDENT BARACK OBAMA: There are some differences between us. The precise formulations and language, and that's going to happen between friends.
BENJAMIN NETANYAHU, ISRAELI PRIME MINISTER: We don't have a lot of margin for error. And because, Mr. President, history will not give the Jewish people another chance.
(END VIDEO CLIP)
WALLACE: President Obama and Israeli Prime Minister Netanyahu during a remarkable exchange Friday in the Oval Office.
And it's time now for our Sunday group -- Paul Gigot of The Wall Street Journal; former Democratic Senator Evan Bayh, now a Fox New contributor; former Bush State Department official Liz Cheney; and Fox News political analyst Juan Williams.
Well, Paul, it was compelling to watch those two leaders in the Oval Office. President Obama, trying to minimize the differences, very notably not repeating his call for returning to the 1967 lines. And then you had Benjamin Netanyahu.
And look at this picture. I don't think I have ever seen a foreign leader lecture an American president in the Oval Office that way on the history of Jewish state and rejecting the Obama peace plan. It's just unrealistic.
PAUL GIGOT, WALL STREET JOURNAL: Well, they both need each other very much, so you're not going to see a total break. Neither one can do without the other. But I think Prime Minister Netanyahu felt he was sandbagged.
I mean, he told him this two days before, I think. Secretary of State Clinton called him. And he said, well, why are you doing this now? Hamas and the Palestinians just agreed to a new deal. The negotiations are going nowhere.
So my question is -- I don't know why administration did this. What did they hope to accomplish? Negotiations are going nowhere, needlessly stuck a thumb in the eye of an ally.
WALLACE: Well, let me bring that up with Senator Bayh.
The White House says that there is no practical difference between what the president formally proposed here and what the basic policy had been under President Clinton and President George W. They also say that they are trying to offer the Arabs something because the Palestinians are headed to the U.N. in September to have a unilateral declaration of a Palestinian state, and they're trying to head off that vote.
Does any of that make sense to you.
EVAN BAYH, FOX NEWS CONTRIBUTOR: I think a lot of it makes sense, Chris. Nobody believes that the '67 lines are going to be where we end up. Everybody knows you have to take the realities on the ground into consideration. That means the settlements.
WALLACE: So why didn't the president say it?
BAYH: Well, he did in one way. He said that there were going to be land swaps, that we're going to have to take the realities into consideration. So, look, a lot of this is just nuanced and semantics. But it has been focused on, and that's unfortunate.
I think you put your finger on a very important point. There is this vote in the U.N. coming up, and unless we're willing to stand alone -- if we have to, we'll be (ph) toward the resolution, but we need to crank up some support for avoiding that. And we also have the unfortunate case a couple of weeks ago of Palestinians coming across the borders.
The Israelis had to shoot them. We have to have some process in place that gives these people some kind of hope so we don't see a repetition of that. So there were practical reasons to do this, even though I agree with Paul, the circumstances right now for successful negotiations are very slim because of the presence of Hamas in the Palestinian government.
WALLACE: Well, and that brings me to the question I want to ask you, Liz, which is, I know you don't like what the president said, but does it make any practical difference? I mean, neither the Palestinians nor the Israelis seem the least bit interested in a peace negotiation right now.
LIZ CHENEY, FMR. BUSH STATE DEPT. OFFICIAL: Well, I think the question is whether or not you're going to respond to what we've seen happen in terms of the agreement with Hamas, in terms of the Palestinians saying unilaterally they're going to go to the U.N. Whether we as the United States respond to that by saying, OK, OK, OK, we'll give you some preemptive concessions here, we'll force the Israelis into a situation where they've got to accept an indefensible border, or whether you approach it by saying we're going to go to the Palestinians and say you've got to choose -- you know, if you're going to ally yourself with Hamas, then we, the United States, cannot back your hopes for a state.
WALLACE: Well, the president did make that point.
CHENEY: The president said that the Palestinians have to explain. He didn't say the Palestinians need to say that they stand for peace and they're not going to ally themselves with Hamas.
We need to make clear that we won't stand for a Palestinian state that's built on terror. And I think that what the president did was the furthest thing from that that you could imagine.
WALLACE: Juan?
JUAN WILLIAMS, FOX NEWS POLITICAL ANALYST: I just heard a different speech from Liz. I mean, I heard him say he's a Zionist. He said that, clearly, the Arabs, and specifically the Palestinians and Hamas, have to acknowledge that Israel has a right to exist. It seems to me that he was very clear about saying that there should be a two-state solution, and that the Palestinian state has to be non- military, cannot be able to attack Israel.
So, all of that was said. And yet, here he comes now and says to the Israelis, you know what? The status quo is unacceptable. We have been cursing each other, and we've been adding fuel to the fire in terms of Arab discontent for so long, let's change the dynamic, let's show that Israel is aggressive, affirmative in saying we want peace.
And I can't believe -- I just want to repeat what Chris Wallace said. It's unbelievable to me that he would have the arrogance to come into the Oval Office and lecture an American president. I think that's way out of line.
CHENEY: I saw that --
WALLACE: I didn't say that. Those are your comments. I said he lectured. I didn't say --
WILLIAMS: He certainly did. But have you ever seen -- you've been at the White House. Have you ever seen anything like it before?
WALLACE: No.
WILLIAMS: Thank you.
(CROSSTALK)
CHENEY: It did not seem to me to be a lecture, in all honesty. When you watch that tape -- maybe what's happened is, in Washington, we're so used to sort of the diplomatic gobbledygook. But I thought what the prime minister did was lay out what is really a non- negotiable position for the Israelis.
And I think that everything you've said, Juan, we all want peace, but we have to be realistic about the fact that the Palestinians have allied themselves with Hamas, and that the Israelis right now are in the midst of a very, very tenuous situation.
WALLACE: OK. I want to move on to another thing, because the president also talked about Syria, Senator Bayh. And despite the fact that the regime of Bashar al-Assad, the president of Syria, has reportedly killed close to 1,000 protesters demanding democratic reform, Mr. Obama offered Assad in his speech another chance.
(BEGIN VIDEO CLIP)
OBAMA: President Assad now has a choice. He can he can lead that transition or get out of the way.
(END VIDEO CLIP)
WALLACE: And in the days after, since the Thursday speech, Assad seemed to have given his answer by killing dozens of more demonstrators.
Why give Assad this chance? I mean, hadn't he already basically shown that he is as much of a thug as Muammar Qaddafi?
BAYH: Well, he has, Chris. Unfortunately, he is likely to do neither lead the change or get out of the way. The sect that he heads with his family is likely to kill as many Syrians as it takes to try and remain in power.
WALLACE: So why didn't the president just say he has got to go the same way he said about Qaddafi?
BAYH: The circumstances are entirely different, unfortunately. Syria has a much larger military. That would be a war that the Europeans would probably not support us in, the United Nations probably would not support us in. So the circumstances are just different in terms of the pragmatics of doing something about it. That's the unfortunate reality.
WALLACE: Paul?
GIGOT: I think they continue to think that they can peel Syria away from Iran. They had this hope from the beginning in the administration. I think they still believe it.
They still believe that Syria somehow can be pushed into a negotiation with Israel. They think that somehow, Syria can control Hezbollah in Lebanon. Of course, it's doing none of those things. And I think we have seen after two years that none of those things are going to happen. So, it strikes me as forlorn hope, but that's what I think they believe.
But the thing that strikes me about the president's speech was that the Israeli parts really didn't add too much, move the ball. And they really preempted some of the other very good points he made in the speech.
WALLACE: That's the last thing I wanted to ask you, because The Wall Street Journal editorial page, which you run and which is not generally a pillar of support for Obama, on a lot of the speech you were quite supportive.
GIGOT: I thought it -- for a while there, I thought I was listening to a speech given by another president in about 2005. I mean, he endorsed, essentially his own freedom agenda. He said we're go to put self-determination.
He still has a hard time saying "democracy," but he put self- determination at the middle of American policy in the Mideast, a top priority. And that was very good to hear. The difficulty we'll have is how do you put specific policies to back that up. But the sentiments were excellent.
WALLACE: All right.
CHENEY: But he's got no credibility at this point on this, because the policy that we've seen since the Arab Spring that's become unleashed has been completely incoherent. You know, saying that we're going to have a no-fly zone in Libya, but then, a few days later, we're going to lead from behind, which most people would call following --
WALLACE: Well, they didn't say that. That was -- I mean, in fairness, they didn't say that.
CHENEY: Someone on background, a presidential aide on background --
WALLACE: Do you want to be held to account in the Bush administration for anything that anybody said in a newspaper article?
CHENEY: Someone on background, a senior administration official, said leading from behind. Now, I think that their actions --
(CROSSTALK)
WALLACE: An unnamed official in an article in "The New Yorker" magazine.
CHENEY: Let's talk about the action. The actions confirmed that that is their approach. And then, not to be able to do anything, apparently, with respect to Syria. So I think that although the rhetoric may have changed, the credible and the actions --
WALLACE: Senator Bayh, one of the things we've got to learn here is nobody gets the last word.
BAYH: All right.
WALLACE: We're going to have to take a break.
But when we come back, the ups and downs of the GOP presidential contest as things heat up.
(COMMERCIAL BREAK)
(BEGIN VIDEO CLIP)
UNIDENTIFIED MALE: I'm the kind person when asked by my president to stand up and serve my county -- when asked, I do it.
FORMER GOV. SARAH PALIN, R-ALASKA: I want to make sure that America is put back on the right track, and we only do that by defeating Obama in 2010. I have that fire in my belly.
NEWT GINGRICH, REPUBLICAN PRESIDENTIAL CANDIDATE: Any ad which quotes what I said on Sunday is falsehood, because I have said publicly those words were inaccurate and unfortunate.
(END VIDEO CLIP)
WALLACE: Just some of the highlights of the week that was on the Republican campaign trail.
And we're back now with the panel.
So, let's start with the man who isn't going to be in the race, Indiana Governor Mitch Daniels, who, overnight, I think, surprised a lot of us, at least with the timing, if not with the decision, Paul, saying that he is not going to run for president, citing family decision.
Your -- first of all, are you surprised? And does this open up the race for a late entry like Chris Christie or Paul Ryan or somebody even in the fall?
GIGOT: I was surprised. It thought he would get in because so many others had not. And there was so much support for him, particularly a lot of the funders who are unhappy with the Republican Party, unhappy with the field, wanted him to get in.
I take him at his word that it was for personal reasons, but I think this really does open up the field for somebody else. It probably helps in the short term with Mitt Romney and Tim Pawlenty and the people who are in the race. But I think this is going to open it up for Chris Christie of New Jersey, it's going to open up it up for Paul Ryan.
Paul Ryan in particular is going to think very hard about this, because he said he wanted to pass his budget to be able to set the terms of debate for the 2012 election. If nobody is taking up that mantle, he's going to think, well, maybe I should.
And then the third person I would say you have to think about now is Jeb Bush, because --
WALLACE: Really?
GIGOT: -- despite the brand name damage that I think people feel a little too early for him -- he might feel that, I think he does feel that -- I also think that, look, if this field doesn't change and nobody else gets in, there's going to be a lot of pressure for one of those three to get in.
WALLACE: Senator Bayh, what you make of all the -- and you sort of have a Cheshire cat grin on your face. What do you make of all the high-profile Republicans? And let's just put some of them up on the screen -- Mitch Daniels, Mike Huckabee, Donald Trump. Because we ran out of budget, Haley Barbour.
What do you make of all these guys staying out of the race?
BAYH: How much things have changed since last November, Chris. I mean, look, the president was on the ropes then, the Republicans had a big victory. Now establishment Republicans are running from this race as fast as they can.
This is good news for the president. It's going to be a protracted contest in which they'll dissipate resources while he can build his war chest. They're going to have to appeal to the Tea Party movements in Iowa, South Carolina, New Hampshire, while he can move to the middle and appeal to Independents and moderates.
So the establishment Republicans are left with Pawlenty and Romney. They seem to be unhappy with that, which raises the prospect of perhaps some outside person coming in. And you see a repetition of what happened in Delaware and, to a lesser extent, in Nevada and Colorado last time, a nominee who just doesn't appeal to the middle. This is all good news for President Obama.
WALLACE: Is there anybody out there like a Christie, like a Ryan, like a Jeb Bush, who would scare you?
BAYH: Well, Christie is an interesting candidate. I have a fondness for former governors, but he has only been there two years, and he has got continued budget wars going on. And what is his foreign policy experience?
WALLACE: Some people could say the same about Barack Obama in 2006.
BAYH: You could see one of your guests earlier today, Minority Leader McConnell, sort of distancing himself, although he personally is going to support the Ryan budget. I mean, that's a (INAUDIBLE) waiting to beat him over the head with.
So it's just -- there's not a lot of "there" there. They're good people, but I think this is a referendum on jobs, gasoline prices, and the deficit. It's the president's to lose at this point, and the Republicans are going to have a very messy primary situation.
WALLACE: All right.
Let's go back to the 2012 race though, Juan. And I want to ask you about Jon Huntsman, former governor of Utah, just stepped down for a couple of years as they Obama ambassador to China. I think it's fair to say he has zero name recognition, but White House officials seem to take him seriously as a potential contender.
Should they?
WILLIAMS: Well, they have to take him seriously because he would appeal to the middle. But the problem is he's not -- he's running in a Republican primary. He's got to appeal to Tea Party types in Iowa. He's got to make an impression with social conservatives, and he just doesn't have those credentials in any way, in addition to not having name recognition.
But as a repository for the big bucks, which has yet to be positive in any account, despite Mitt Romney's claim that he got $10 million in one day, it's just not that impressive if you look at it. So the big money and I think, especially, the Bush money, and a lot of money that comes after the Citizens United decision, which is independent dollars, have yet to flow in support of any one Republican. And so everybody is looking at that.
Mitch Daniels, I think, would have been the logical place. He's got the experience. He can make the argument in terms of the poor economic performance, in terms of gas prices and the like. He's not going.
So I think right now -- I wrote a column for FoxNews.com this week. I said it's like, please, Mr. Custer, I don't want to go among Republicans. Nobody wants to get out there.
Most Republicans, Liz, by the way, say they are very dissatisfied with this field --
CHENEY: These are a lot of Republican friends you're talking to?
WILLIAMS: I can read polls. You know what? You're my friend.
(LAUGHTER)
WILLIAMS: But I'm just telling you --
WALLACE: That's well played, Juan.
WILLIAMS: -- most Republicans aren't happy with this field.
WALLACE: All right. Let's talk about the man -- and it's interesting that we keep on sort of brushing past him, but Mitt Romney continues, Paul, under the radar, strong name recognition, doing very well in the polls, did raise $10 million despite brother Juan's comment, "claims to have raised $10 million" in one day --
WILLIAMS: Oh, please. In one day? You believe he raised $10 million in one day?
WALLACE: I think it's possible, yes.
WILLIAMS: How long have you been around this town? Come on.
WALLACE: In any case -- and I know that you guys have had troubles with him at The Wall Street Journal because of Romneycare and the similarities with Obamacare. But can he get past that in the Republican primary? And how formidable a candidate would he be against Barack Obama?
GIGOT: Well, he's formidable in the sense that he has a lot of organization, he really wants it bad. And that is half of the battle in running for president nowadays. But I think he would have helped himself enormously had he said we tried to pass a health care reform in Massachusetts, it didn't work, I learned some lessons, and now pivot and say --
WALLACE: Well, he's not going to say that.
GIGOT: Well, I know, and I think that's a very big problem, because it takes health care off the table for him. And the Republican voters, they want that to be --
WALLACE: But is that a fatal problem?
GIGOT: I think it's going to -- is it fatal? The voters will decide. I think it has the potential to be fatal for him as a candidate in the primaries, and it raises doubts in my mind about what kind of president he would be.
What does he believe in? Or is he a technocrat who thinks we can get everybody in the room, the smartest people, left, right, center, and they can all agree and work it out?
There are some differences that can't be parsed, and one of those is, what's the role of government in health care? He has never really stated what that role is.
WALLACE: Senator Bayh, let's just assume, sort of as a miracle, that he ends up winning the Republican nomination. I mean, if the economy continues to be in the doldrums, if we've got high gas prices, if we've got over 8 percent unemployment, this is a guy who has run a business, who's met a payroll.
Wouldn't he be a tough candidate?
BAYH: Well, I do think Romneycare is an issue for him.
WALLACE: Yes, but it's an issue in the Republican race. It's not one that Obama is going to be --
(CROSSTALK)
BAYH: But it takes off the table in the fall campaign.
WALLACE: OK. There are plenty of other races.
BAYH: And secondly, a track record of certain inconsistency of positions will trouble him. But in some ways, Chris, it doesn't matter.
When you have an incumbent president, it's a referendum on the incumbent. And if we have GDP growth of somewhere north of two percent, if we can get some progress on the deficit, if energy prices stabilize, this is Barack Obama's election to lose. And as long as the Republicans don't nominate someone who's fatally flawed, it's really just a placeholder.
WALLACE: And in 30 seconds, your thoughts about Mitt Romney as a potential GOP nominee?
CHENEY: Look, I think he has got real potential to win the nomination. I think he's got real potential to be able to challenge President Obama.
I think that it's true, it will be a referendum on President Obama. And I think that the difference in our views on how he's done demonstrates where we differ in terms of what's going to happen in 2012.
WALLACE: All right.
Thank you, panel. See you next week.
Don't forget to check out "Panel Plus," where our group picks right up with the discussion on our Web site, FoxNewsSunday.com, and we'll post the video before noon Eastern Time.
Up next, we hear from you.
(COMMERCIAL BREAK)
WALLACE: Time now for some comments you posted to our blog, Wallace Watch. And most of you weighed in on our interview with presidential candidate Ron Paul.
Sandy sent this: "Dr. Paul speaks the truth. He stands for the Constitution, true liberty and freedom. His views don't waver based on what he thinks will get him elected."
But Bob Rajevski (ph) questioned Paul's constitutional philosophy. "Let's not hold it up as if it were written by some divine power. It was written by politicians, albeit better ones that we have today."
Finally, Starla Sandra Cole (ph) has two other candidates in mind. "Brit Hume for president in 2012. He is the most balanced, most astute, most rational voice on every issue of anyone I've heard, except maybe Chris Christie."
Please keep your comments coming to us at FoxNewsSunday.com.
And that's it for today. Have a great week, and we'll see you next "Fox News Sunday."
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