updated 9/26/2006 10:48:56 AM ET 2006-09-26T14:48:56

Guests: Fran Townsend, Jane Harman, Larry Sabato, Mark Everson, Kate O‘Beirne

CHRIS MATTHEWS, MSNBC HOST:  A new government intelligence report says the war in Iraq has encouraged terrorist recruitment.  Finally we have the metric Secretary Rumsfeld has been seeking.  Are we creating more terrorists than we‘re killing?  The report says yes. 

Let‘s play HARDBALL. 

MATTHEWS:  Good evening, I‘m Chris Matthews.  A new national intelligence estimate says the Iraq war has played a direct role in fueling Islamic radicalism and made the terrorist threat worse.  As public opinion turns against the war and retired generals speak out, can the White House continue to defend its Iraq policy when 16 U.S. intelligence agencies conclude that the war has contributed to the spread of jihadist thought throughout it is world?

In a moment President Bush‘s top counterterrorism and homeland security adviser Fran Townsend will be here.  And as the Bush administration and Republicans campaign to keep the war on terrorism front and center, former president Bill Clinton was pressed on Fox News Sunday on whether he did enough to neutralize bin Laden and al Qaeda when he held office. 

(BEGIN VIDEO CLIP)

UNIDENTIFIED MALE:  Do you think you did enough, sir? 

BILL CLINTON, FORMER PRESIDENT OF THE UNITED STATES:  No, because I didn‘t get him. 

UNIDENTIFIED MALE:  Right.

CLINTON:  But at least I tried.  That‘s the difference between me and some, including all the right-wingers who are attacking me now.  They ridiculed me for trying.  They had eight months to try, they did not try.  I tried.  So I tried and failed.  When I failed, I left a comprehensive anti-terror strategy and the best guy in the country, Dick Clark, who got demoted . 

(END VIDEO CLIP)

MATTHEWS:  We begin with my interview with Fran Townsend, assistant to President Bush for homeland security and counter-terrorism. 

(BEGIN VIDEOTAPE)

MATTHEWS:  Fran Townsend, thank you very much—assistant to the president for Homeland Security.  Let me ask you, Fran, did anyone at the White House get angry at what Bill Clinton said the other day, or are they in a position to criticize his handling of terrorism defense before your administration took office?

FRAN TOWNSEND, PRESIDENTIAL ASST. ON HOMELAND SECURITY:  Chris, I‘ll tell you, I sort of have to agree with President Clinton when he said, you know, it‘s not terribly productive to do these backward looks.  I will tell you I was a little surprised, frankly, by his remarks, and it is offensive to me, the notion that anyone would suggest—everybody that I‘ve ever worked with has done their level best when they were in office to fight this war on terrorism. 

Now, that said, the president talked about certifying by the FBI and CIA who was responsible for the Cole attack, just as one example, and the answer is, you know, I thought that was pretty telling, certify that the, sort of, legalistic, evidentiary type of approach, where as, we know, President Bush has not taken that approach.  His is one of taking responsibility and bringing people to justice. 

I think President Clinton tried to do the same during his period in office—each does to the best of their ability during their term—but I will tell you, you know, many of the agencies that were responsible—FBI, CIA, the U.S. military—were suffering huge resource cuts at the time and people were doing their best.

MATTHEWS:  Well, the trouble with—well, let me just ask you openly: 

Vice President Cheney, on a number of occasions—on “MEET THE PRESS”—said that we had to—one of the reasons for attacking Iraq was that they were somehow involved in some Prague meeting with their intelligence official and bin Laden—rather, Mohammed Atta.  There you have a case of shooting first and asking questions later.  Now the vice president says there was no connection between 9/11 and Iraq.

There‘s a country we attacked—you say, don‘t get legalistic and pretend we‘re Dick Tracy about this, but when you go the other way and you attack a country you say had a role in 9/11, it turns out it had no role in 9/11 -- isn‘t that a worse case?

TOWNSEND:  I mean—let‘s be real clear.  The world is better off without Saddam Hussein in power.  Iraq is now the central front in the war on terror.  We know that not only—not because we say it, we know it because of the very words of bin Laden and Zawahiri themselves.  Zarqawi and all of al Qaeda has referred to the war in Iraq as being a third world war that they must win.  We know that if the jihadists don‘t win in the war in Iraq, they face ultimate defeat, and that‘s why it‘s very important for us to win there.

MATTHEWS:  Well, that‘s a good argument for staying there, but when you get to the point where you criticize President Clinton for taking a legalistic point, trying to establish the evidence before attacking another country, and I‘m just telling you, the vice president‘s on the record as having said that Saddam Hussein was somehow involved in the attack on us on 9/11, which killed 3000 people, and subsequently, after we have attacked them, occupied them, 50,000 people are dead there -- 3,000 of our people—

10,000 people without limbs—now he says, oh, by the way, yes, you‘re right, I was wrong, there was no connection between Saddam Hussein and 9/11.  Isn‘t that the worst kind of police work, to not even care to check the facts before shooting?

TOWNSEND:  Chris, let‘s go back.  What I would say to you, when you say that, is Republicans and Democrats—both administrations—believed that Iraq was a threat, believed the intelligence on Iraq.  The intelligence turned out to be wrong.  That said, we are certainly—

MATTHEWS:  What Democrat, or anyone besides the vice president, I should say, is on record as having—besides Laurie Milroy, the reporter, the writer—who else believed there was a connection between 9/11 and Saddam Hussein that you can certify in either party—besides the vice president?

TOWNSEND:  No, I didn‘t say that there was a connection between Iraq and September 11.  What I‘m saying is, the intelligence that was provided in the NIE suggesting that Iraq was a threat to the region and to the world, was believed on by—on both sides of the aisle, that formed the basis of our going into Iraq.  The intelligence turned out to be wrong.  That said, we are safer as a result of not having Saddam Hussein in power.

MATTHEWS:  Well, that‘s the question—that‘s the question I want to bring up to you, because the National Intelligence Estimates, as reported, whether selectively or not, said that there‘s been an uptick in recruitment of terrorism because of our involvement in Iraq.  What‘s your response?

TOWNSEND:  What I would say to you is, you‘ve got a paragraph that‘s been leaked out of a nine-page summary and a more-than-35-page report that looks at global trends in terrorism.  This—it talks about the jihad in Iraq as being one of the propaganda tools of the jihadists as a method of recruiting, as a method of raising money—that‘s—but it‘s one.  There‘s many historical grievances that they use, and this is one piece.

And Chris, I don‘t think there‘s any question that it‘s been selectively leaked.

MATTHEWS:  So that sentence was in the NIE.

TOWNSEND:  It talks about the jihad—the Iraq jihad as being one of the things used by al Qaeda and extremists as a propaganda tool to further extremism.

MATTHEWS:  Well, do you think that‘s accurate?  Do you think it has encouraged extremism?

TOWNSEND:  Let‘s go back.  I mean, certainly the extremists used the war in Afghanistan against the Soviets as a recruiting tool.  Certainly they‘ve used the Palestinian-Israeli conflict as a recruiting tool.  They use many of these grievances as recruiting tools.  It shouldn‘t surprise anybody.

And by the way, the president has been very clear about this throughout September when he was giving speeches.

MATTHEWS:  Well, do you think that people seek revenge naturally, and isn‘t it a reasonable assumption that if we go into a country and we kill 50,000 Arabs on television, that they will seek revenge?  Isn‘t that human nature, tribal instinct?

TOWNSEND:  You know, they were killing us long before we went into Iraq.  Look at September 11 -- there‘s no question, this—they‘re not killing us because of Iraq, they were killing us long before that.

MATTHEWS:  Well, sure, they were killing—you could—well, getting into motives is a tricky thing, I agree with you.  But we do know that one of the reasons that bin Laden was most angry at us and hated us was that his government allowed 10,000 infidels into that country for 10 years.  And that‘s his reason.  I don‘t know why people make up reasons; I assume—don‘t you—that motive at some point is genuine?  That when people say they‘re doing something for a reason, there‘s a reason there?  Or do you just think they make up excuses to go to war?

TOWNSEND:  No, --

MATTHEWS:  And kill themselves?

TOWNSEND:  No, I think this is a hateful ideology.  It uses violence as a means to achieve its ends.  And I think that whatever vapid and vacant reasoning that they come up with—do I credit that?  No, I don‘t credit that.

MATTHEWS:  Do you think this issue of terrorism is going to be an issue in this campaign, this one coming up in November?

TOWNSEND:  You know—

MATTHEWS:  Who‘s best at protecting us—the Republican administration or the Democratic opposition?

TOWNSEND:  Chris, as you know, I‘ve worked for both administrations. 

I‘m probably the last person to be answering that question.  Do I expect—

I think it‘s unfortunate that politics gets played with this issue because I think it‘s a critical issue to the American people and what they want to see is that we‘re doing our best, which we are.

MATTHEWS:  What do you think caused this reexamination of the Clinton role in antiterrorism—the weak role, the positive role, the negative role—why are we talking about that now?  I noticed Chris Wallace asked him yesterday on television, on his Sunday program, but to sort of justify the question—which journalists, I don‘t think, have to justify any question—he said, I got a lot of mail on this, a lot of e-mails, suggesting I should ask this question, which to me is an odd way to ask a question.  Who is pushing this story about the Clinton program back in the ‘90s?  Why is that a news story now, on the eve of an election?

TOWNSEND:  Chris, I have no idea, and I wouldn‘t begin to speculate.  I will tell you the 9/11 Commission did a very thorough job going back and looking at many of these issues, and so why this is an issue now, I think it‘s very much on the minds of the American people, five years later.

But I couldn‘t begin to tell you why Chris asked the question.  But I will tell you, I think he handled the whole interaction with a good deal of grace, because President Clinton came back at him pretty harshly in a personal way.

MATTHEWS:  Yes.  Let me ask you about our travel plans now.  I read the good news that you can now travel with three ounces of liquids.  I think that‘s great.  What would that include?  Just—I want to lighten our conversation.  That would include probably some baby formula.  That might include toothpaste—a small container.  What else can we now carry?

TOWNSEND:  Your travel shampoo, your make—women‘s makeup, lipstick, hair gel—in a small travel case.

MATTHEWS:  Well, we‘re ending on a lighter note.  Thank you very much.

Fran Townsend—you‘re a good person to come on the show like this in this moment of debate, thank you very much—from the White House.

TOWNSEND:  Take care, Chris.

MATTHEWS:  Thank you. 

(END VIDEOTAPE)

Or three ounces of coffee.

Coming up, reaction from the ranking Democrat in the House Intelligence Committee.  U.S. Congresswoman Jane Harman of California later.

That Senate race in Virginia takes another twist.  Senator George Allen is denying allegations he regularly used racial slurs backed in college at UVA. 

You‘re watching HARDBALL on MSNBC.

(COMMERCIAL BREAK)

MATTHEWS:  Welcome back to HARDBALL.

We just heard from Fran Townsend, assistant to the president for Homeland Security and Counterterrorism on this new National Intelligence Estimate, and here to give the Democratic response is U.S. Congresswoman Jane Harman of California, the top Democrat on the House Intelligence Committee.

So Congresswoman, what do you make of this report that says we‘re creating more terrorists, perhaps—in fact, more terrorists than we have already by, this war in Iraq? 

REP. JANE HARMAN (D) CALIFORNIA:  The National Intelligence Estimate remains a classified document, so I can‘t describe it specifically.  But every intelligence analyst I speak to tells me that the war in Iraq, which is going badly, for which we have a failed strategy, is making the world more dangerous and it is serving not only as a training ground for terror, but it is being broadcast all over the world and promoting copycat terror cells around the world, which everyone thinks are the new big threat. 

MATTHEWS:  Wasn‘t this predictable? 

HARMAN:  Yes, I think it was predictable.  After all, we went into Iraq based on intelligence that we believed.  The intelligence turned out to be wrong.  We then failed to plan, post-war, for what could happen.  Remember Jerry Bremer, who was our leader in Iraq at the time, said a few dead-enders are causing problems.  Nobody predicted the size and scope of this insurgency.  And now that Iraq is the danger that it is, yes, it could have been predicted.  It should have been predicted and we should have prepared for it, guarded the arms caches, changed our strategy when it was clear it was failing. 

MATTHEWS:  What do you think of Vice President Cheney‘s comments that actually continue on course as if they were true, that as he said several months ago, the insurgency is in its last throes.  He said we‘d be treated as liberators when we got there—he‘s been dead wrong, month after month after month.  Yet he receives respect of the media.  I don‘t get it.  What is his secret, politically, to be able to be wrong all the time in every regard:  the WMD, the connection to 9/11, Saddam Hussein was meeting with them, with Mohammed Atta—that turns out to be wrong.  The arms things was wrong.  The connection to 9/11 was wrong.  He was wrong about the insurgency.  That was wrong.  Everything he ever said about this war has been wrong, and yet he comes on Sunday television like the prophet himself and everybody stands back and says, oh, he‘s a wise man.  He‘s very prescient about things.  He‘s always wrong.

HARMAN:  I don‘t know if he‘s always wrong, but the White House—

MATTHEWS:  In this case—in this case, Congresswoman, name a point on which he‘s been correct in his predictions? 

HARMAN:  I‘m not going to.  I agree.  The White House is an evidence-free zone with respect to how Iraq is going and how the war on terror is going.  They‘re not the same things.  Now they may be, but they never were.

MATTHEWS:  That‘s a problem.

HARMAN:  It is also true that the vice president refuses even now to correct the record.  He was on “MEET THE PRESS” two weeks ago and he said, We don‘t know there was this connection between Iraq and al Qaeda before 9/11.  There was not.  Let me say it definitively, there was not, and he should correct the record. 

MATTHEWS:  Congresswoman, you spent a lot of hours trying to understand this intelligence, more than other members of Congress.  You are an expert, if there is one, on the Hill.  What do the Democrats offer, going into this election, in terms of how we root out terrorism without having an unending war in Iraq? 

HARMAN:  Let me start with the fact that we need accurate, actionable intelligence.  That is intelligence that tells the true story.  Then we need public officials to read the intelligence and quote it accurately.  If we just started with that, I think the country would be a lot better off.  We should tell the truth to the American people and our policy should be based on a true scenario of what is happening and what could happen.

How to make the world safer, in my view, starts with changing our policy in Iraq; the administration‘s policy has failed.  They stubbornly cling to this policy -- ‘stay the course‘ is a failed strategy.  Democrats would change it.  Redeployment of troops is a piece of change, but we also have political objectives to achieve in Iraq.  We want this government to succeed.  We want it to deliver services.  We want the Sunnis to buy into the government, et cetera.  I mean, I could go on.

We want the neighborhood to support the new Iraqi government . 

MATTHEWS:  Speaking of Democrats, let‘s listen to what former President Bill Clinton—he was a Democrat, still is—said on “Fox News Sunday” about his own efforts—failed, actually—to try to catch and kill bin Laden. 

(BEGIN VIDEOTAPE)

BILL CLINTON, FMR PRESIDENT OF THE UNITED STATES:  You falsely accuse me of giving aid and comfort to bin Laden because of what happened in Somalia.  No one knew al Qaeda existed then.  And the very—

CHRIS WALLACE, FOX NEWS HOST:  But did they know in 1996, when he declared war on the U.S.?  Did they know in 1998 --

CLINTON:  Absolutely.  Absolutely they did.

WALLACE:  -- when he bombed the two embassies?  Did they know in 2000, when he hit the Cole? 

CLINTON:  What did I do?  I worked hard to try to kill him.  I authorized to find him, for the CIA to kill him.  We contracted with people to kill him.  I got closer to killing him than anybody has gotten since.  And if I were still president, we‘d have more than 20,000 troops there trying to kill him.

Now, I‘ve never criticized President Bush, and I don‘t think this is useful.  But you know we do have a government that thinks Afghanistan is only 1/7 as important as Iraq. 

(END VIDEOTAPE)

MATTHEWS:  Boy, that was close quarters, there, Congresswoman.  They were face-to-face there, Chris Wallace of Fox and the former president.  Is the former president accurate—did he do the best an American president could have done to go after bin Laden before 9/11? 

HARMAN:  Let me say a couple of things:  first of all, I admire his passion, and the world is better off for it.  Secondly, I was in Congress during the Clinton years, and I saw what was going on.  I served on the Intelligence Committee, and we did all become aware, including the Clinton administration, of the al Qaeda threat in the mid-90s.  And the Clinton administration, specifically George Tenet and Sandy Berger and Madeleine Albright and a few others, were working against this threat.

Of course, later on, we learned how much more serious it was then we had thought then.  But I was a plane with the Clintons and some members of Congress returning from the Middle East in late 1998, just before the House impeachment vote, and the issue was discussed among all of us about, What do we do, should any action be taken using cruise missiles?  And all of us immediately said to the president, Do the right thing.  And the president, I believe, at the time, based on the information we had, did the right thing and sent cruise missiles into—I believe it was Afghanistan at the time. 

Sure, in hindsight, more could have been done, but in foresight, I believe and I sought—and I believe that the Clinton administration and the Congress were working hard at the problem. 

MATTHEWS:  Is someone ginning up this charge against former President Bill Clinton, at this ,point on the eve of an election—is this a campaign to push this issue?  I don‘t know where it—did it come from “The Path to 9/11,” the ABC movie that was argued about?  Where did this thing come up about Bill Clinton all of the sudden?

HARMAN:  I don‘t know where that came up, but I certainly think the Republicans are trying to make this campaign about the threat of terrorism.  They‘re trying to scare people and then suggest that the only way to have security is to follow their lead. 

Well excuse me, they‘re the ones who have brought us stay the course in Iraq.  Stay the course is failing.  They are the ones who have turned Iraq because of the failed strategy into this staging ground for terror that it has become.  I think the Democrats are tough and smart on security and we have better ideas about Iraq, which are critical, and at least as far as I‘m concerned, using intelligence accurately, having accurate intelligence and using it accurately is the best way to make good policy in these dangerous parts of the world.

MATTHEWS:  If the Democrats get elected president in 2008 -- if a Democrat wins, will he or she get us out of Iraq?

HARMAN:  Well ultimately we want—the answer to that is yes.  I think we may get out of Iraq militarily before 2008, but I think our objective should be to help the government of Iraq succeed.  Getting out is kind of a bad word.  We want to redeploy our troops and we want to put in place a political environment that‘s successful.

MATTHEWS:  What‘s the difference—I‘m sorry congresswoman—help me with the nomenclature here.  What is the difference between getting out and redeploying?

HARMAN:  Well getting out—yes, getting out means that our troops move to areas surrounding Iraq where they are safe like Kuwait City and parts of Jordan where we are invited in, but we stay in the region.  The region is dangerous.  Iraq is not the only dangerous part of the region.  There is Iran, there is Lebanon and the threat of Hezbollah resurging.  There is the Palestinian/Israeli conflict, et cetera.  We certainly need not just American troops, but an American focus on a sensible way to bring stability to the whole region.  It‘s in our national interest and we‘re not safer with the way we are proceeding in Iraq.

MATTHEWS:  Thank you very much.  U.S. Congresswoman Jane Harman, the top Democrat on intelligence.  Up next, it‘s a Senate race that was never supposed to be this close.  And now Senator George Allen is denying allegations from some former teammates and classmates UVA that he used racial slurs.  However, he‘s got his own people out there, a lot of former classmates coming into his defense who said he never did anything like that.  We‘re going to have a debate coming here about these old time charges coming back and whether they‘re fair or not.  Let‘s see how they are and what it‘s going to do with election with Jim Webb, who‘s running against him.  You‘re watching HARDBALL on MSNBC.

(COMMERCIAL BREAK)

MATTHEWS:  Welcome back to HARDBALL.  Virginia Senator George Allen‘s battle against Democrat Jim Webb continues to take some strange turns these days.  Today‘s Salon.com, it‘s the online newspaper, reports that some of Allen‘s old college football teammates say he regularly used racial slurs back in the 1970s.  Senator Allen told the “Associated Press” today that the charges are ludicrously false.  His campaign has put out quotes from five other teammates backing the case for their senator against the three who have outed him or gone after him, who have rejected the charge.  They say he‘s not ever used those terms, the “N” word or whatever.  And the Republican Senate campaign is going to be responding by trashing Salon itself.  In short, it‘s moving from ugly to really ugly in this race.

A real expert—in fact the No. 1 expert on Virginia politics is about to join us, Larry Sabato of UVA.  He‘s watched George Allen‘s entire political career since his college days at UVA.  He‘s now director of the center for politics at UVA.  He‘s the author of “Divided States of America:

The Slash and Burn in Politics of the 2004 Presidential Election.”

Professor Sabato—Larry, thank you for joining us.  We haven‘t had you on in awhile.  What is this about in this race, this used to be the mother of presidents, what is this race all about down there?

LARRY SABATO, UNIV. OF VIRGINIA CTR. FOR POLITICS:  Well Chris, you‘ve been around Virginia a long time too and Virginia is changing.  It‘s as much a middle Atlantic state as it is a Southern state.  Virginia is not as heavily Republican and it certainly isn‘t as conservative anymore as George Allen was or is depending on which day of the week it is. 

So I think that‘s fundamentally his problem.  He‘s running in a state that‘s more purple than red.  He‘s stuck with this rural redneck image that he‘s had for years, really ever since he was a student, if you want to know the truth.

MATTHEWS:  Well how did he have that reputation as a student, define that if you can?

SABATO:  Well as you know and anybody who has followed politics recently knows, he had a long love affair with the confederate flag and other symbols of the confederacy, which frankly was a bit odd for somebody who grew up in an upper middle class family with every possible privilege in southern California.  It was an unusual love affair.

MATTHEWS:  Did you know about this at the time, in real time?

SABATO:  Oh yes, yes, I did.

MATTHEWS:  You knew that George Allen‘s son, the son of the former great football coach for the L.A. Rams and for the Skins here in Washington, had a son who was—what did you call him?

SABATO:  I said he was devoted to, I called him a redneck, but I think he would embrace that term himself,  Some people called him neck.  That was his nickname.

MATTHEWS:  You mean with the cowboy boots, the confederate flag, the noose, the whole works.  What about these charges that he actually used the bad language that some of us are familiar with in this country—in fact, most Americans are—the bad language about people from another, other background—did he do it?

SABATO:  I can‘t say how frequently he did it, but I don‘t believe him when he denies never having done it.

MATTHEWS:  Well that in this country, for that generation, is a very hard test.  The accusation here, I believe is that he was distinctive in what is being called racial hatred, that he regularly used the awful word, the “N” word with some sort of attitude.  Is that true?

SABATO:  Well I‘m simply going to say that I‘m going to stay with what I know is the case.  And the fact is that he did use the “N” word, whether he‘s denying it now or not.  He did use it.  It was the ‘70s, you‘re right, it was a harsh term, it was an obscenity at this as far as I‘m concerned.

MATTHEWS:  In all fairness, it was a word that we were told growing up never to use, and most of—in fact, I don‘t think hardly anybody used it,  even in Philly, which was pretty racially divided for most of my growing up.  There were other words used, perhaps not quite as malicious, that were ethnic in nature.  But you say he used the “N” word?

SABATO:  That‘s correct.

MATTHEWS:  Let me ask you about this.  Is this going to hurt—you say this state has changed but are there people out in Virginia who are a bit conservative on the issue of race who will be happy with this, will have no problem with this, or has the state really changed?

SABATO:  Well it‘s changed dramatically and I have to defend my state.  I happen to be born here and grew up here and I‘ve been here for 54 years and I would say that the Virginia I grew up in in the ‘50s fortunately no longer exists.  That was the Virginia of massive resistance.  This is a much more tolerant state.

MATTHEWS:  So the Harry Byrd Virginia might have likened to this. but the modern day, 2006 Virginia ain‘t going to like it.

SABATO:  In most places.  There are certainly some rural areas where it might sell.  But let me remind you, Chris, Virginia right to this day is the only state to have elected an African-American as governor. 

MATTHEWS:  Yes.  But of course he was going to win by 13 and he won by one, so 12 percent of the white vote wasn‘t being very honest, right, to the pollsters. 

SABATO:  Well, that‘s true, but the other 49 states haven‘t gone that far. have they? 

MATTHEWS:  Good argument. Good case for Virginia.  Is this race going to continue downhill?  I mean, a lot of this stuff is being (inaudible).  He‘s got five guys that say he never used bad language and race, from his team mates, they‘re all coming forward.  Three are saying he did. 

So this gets into who do you believe, or is it more likely that you believe the ones who make accusations and believe the others are simply loyalists.  Then again, they go back and check the contributions, and the guy who—this guy Sheldon (ph) apparently gave to a Democrat down there and he campaigned down there.  He also gave to a Republican. 

How do we know who to believe?  You say believe the accusations, right? 

SABATO:  I‘m saying only about the “N” word.  I‘m not saying about the other instance.  I wasn‘t there for those incidents.  But...

MATTHEWS:  How do you know about the “N” word?  How do you know, Larry, about the “N” word?

SABATO:  Because there is other evidence that I‘m not going to go into on your show, Chris, sorry. 

MATTHEWS:  But you can swear to this? 

SABATO:  I absolutely believe that he used the “N” word.  That is absolute correct and I do believe that.  Also I must tell you, Ken Sheldon is a very able, dependable fellow, highly regarded. 

MATTHEWS:  But you never heard him use it, did you? 

SABATO:  Chris, I‘m not going to go into any more details. 

MATTHEWS:  No, that‘s a yes or no.  I mean, if you have, you have, if you haven‘t, you haven‘t. 

SABATO:  Yes.  Well, and there are the two choices and you just presented them and we‘ve had a nice talk. 

MATTHEWS:  OK.  Let me ask you about the politics, the macropolitics of Virginia.  Is this going to define the election, can it switch now, in a result?  Can Webb win on this kind of talk, this discussion about the character, if you will, of George Allen? 

SABATO:  No, it‘s not enough.  The fact is that eventually this campaign about will get back to issues, other issues.  These are somewhat important character issues, but they shouldn‘t define an election that ought to be about central issues like Iraq and like the economy and all the other things that really haven‘t been discussed. 

MATTHEWS:  Well, I‘m with you.  I wish they were arguing about Iraq on television every night.  Unfortunately the news media—here‘s something you guys can start beating the drum on—I don‘t see the news media, especially television, covering the war anymore.  And people are getting killed over there, 3,00 a month, and nobody‘s talking about it, it‘s not getting covered. 

Professor Larry Sabato, one of the best political scientists in the country.  Thank you sir, for joining us. 

SABATO:  Thank you, Chris.

MATTHEWS:  I‘m actually going to talk with IRS commissioner Mark Everson about government probes into the tax status of some churches.  Are churches breaking the law by helping political campaigns?  You bet. 

And coming up later this week on HARDBALL, Florida Senate candidate Katherine Harris, she‘s great, she‘s interesting, and also Robert Kennedy, Jr. is coming on.  And former New Jersey Jim McGreevey, he‘s coming here to talk about his book. 

You‘re watching HARDBALL on MSNBC

(COMMERCIAL BREAK)

MATTHEWS:  Welcome back to HARDBALL. 

This year Democrats and Republicans are leaning heavily on churches, synagogues and charitable organizations to help spread campaign messages and get out the vote.  But in some cases such tactics have organizations campaigning directly for or against specific candidates.  And that is against the law.  In a moment, we‘ll talk with the director of the IRS. 

But first, here is HARDBALL correspondent David Shuster. 

(BEGIN VIDEOTAPE)

DAVID SHUSTER, HARDBALL CORRESPONDENT:  They are the groups with the dedicated following, a strong social network and a built-in activist organization.  And with churches and other religious groups now being aggressively courted by both political parties, another group has had an awakening, the federal government‘s Internal Revenue Service. 

Under federal law, tax-exempt organizations are prohibited for participating or campaigning for or against any candidate for public office.  And so the IRS is ratcheting up an enforcement program called the Political Activity Compliance Initiative.  The new crackdown is the result of the 2004 presidential election. 

GEORGE W. BUSH, PRESIDENT OF THE UNITED STATE:  Government policy said on the one hand, perhaps you can help, on the hand, you can‘t practice your faith.  Faith-based programs are only effective because they do practice faith.  It‘s important for our government to understand that.

SHUSTER:  While President Bush did not ask churches to campaign for him, his message prompted several groups to organize and raise money for his campaign anyway.  The IRS determined that out of nearly 100 audits of churches and other tax-exempt religious organizations two years ago, 71 percent were found to have engaged in unlawful political intervention. 

For all the attention on the Christian right, a Democratic-leaning tax exempt organization was put under the spotlight as well.  In 2004 the chairman of the NAACP gave a speech blasting the Bush-Cheney administration. 

Quote, “They‘re waging class war from the top down, literally taking food from the mouths of poor children and giving more largess to millionaires.  They‘re practicing trickle-down economics, and I‘m tired of it trickling on us.”

After a lengthy two-year audit, the IRS determined the speech did not amount to political intervention, and the NAACP declared vindication.  Still, with more and more tax-exempt groups and churches on the left and right preparing voter guides for their members, the IRS is adding resources for the final six weeks of the 2006 campaign. 

The initiative is intended to insure that public referrals or activities uncovered by the IRS are reviewed quickly and treated, quote, “in a consistent, fair, and non partisan manner”.  But for parishioners whose voter participation tends to be higher than most other demographics, the line for them may be difficult to determine.  Listen to this message last week from President Bush.

GEORGE W. BUSH, PRESIDENT OF THE UNITED STATES:  For those of you who have given thanks and for those of you who wonder if there is still more to do, there is.  And so I urge you to think about putting up signs and get on the telephone and turning out the votes.  Go to your churches and places of worship.

(END VIDEOTAPE)

SHUSTER:  Did that exhortation go too far?  Experts say no because there is nothing wrong with politicians giving a campaign speech in a church.  It‘s when a church or other tax exempt organization does the campaigning that the law comes into play.  That may sound like a blurry distinction but the IRS is determined this year to enforce the law.  I‘m David Shuster for HARDBALL.

MATTHEWS:  Thank you David Shuster.

Here to comment on this report is the IRS commissioner himself, Mark Everson.  Commissioner, let me ask you.  The president said go out and do the work for the cause.  If a minister ever stood up and said amen, would that be breaking the law?  If he just say, I agree with the president?

MARK EVERSON, IRS COMMISSIONER:  Politicians can say what they want to, Chris, but it‘s the conduct of the tax-exempt organization that is at issue, the charity or the church.  And if I could take a second to just put this...

MATTHEWS:  ... I want to get to my point.  If that minister had stood up and said amen to the president, would he be breaking the law because he would be saying, I want you to do what he said to do?

EVERSON:  Well the president said get out there and do a variety of things.  He didn‘t say put signs up at the church or he didn‘t say use that church through its official capacities, as I understood it.  Now, it was a brief snippet, but what the politician says is one thing, but what the organization in turn does is the other thing. 

Let me put this in context, if I could, just to start the discussion.  There are really three points I would make.  First, religious liberty and freedom of speech, those are underpinnings of our society, of our democracy.  You have a constitutional right to that.  But there is no constitutional right to a tax exemption.  That‘s the first point.  And since the year that I was born, 1954, it‘s been illegal to get involved in races for or against a particular candidate if you want a tax exemption. 

And the third question is why is this important and why is it important now and why are we, as you say, ratcheting it up?  Well, no one is happy with the way politics is working in this country.  You look at—we went from $4 billion of FEC regulated expenditures to 1999 to ‘00 to over 10 in ‘03 and ‘04.  We‘ve got Abramoff misusing charities.  This money will head into the least regulated part of our economy if we‘re not careful.  We have to enforce this line, otherwise charities and churches will become arms of political campaigns.  That‘s what‘s really at stake here.

MATTHEWS:  Now in the aftermath of 2004 when Ohio went for President Bush in a very close election, it was the pivotal state, we heard reports that Don King, the fight promoter who was a Republican was working with Karl Rove and getting a lot of the black ministers in Cleveland to go to their church congregations and say vote against this initiative on gay marriage because we don‘t believe in that in our church.  Is that breaking the law, coming out to vote for a gay marriage referendum that would oppose gay marriage?

EVERSON:  Initial advocacy is fine and that includes a referenda. 

What is against the law is helping or opposing particular candidates.

MATTHEWS:  So back in 1960, when Harris Wofford and Louis Martin went out and raised hell about Nixon and they came out for Kennedy after Mr.  King, Martin Luther King was arrested—they came out really strong for the Kennedy campaign, these black minister.  It was called the blue bomb, it was a piece of literature went into every car window, everybody parked at the black church right before that election.  Two million of these went out.  Was that politics?

EVERSON:  Look, you‘re getting in way over my head.  You‘ve got the history.  You know the history.  I can tell you this all got started under LBJ when—in some race that he was in, back in the ‘50s, that‘s when the first piece of this came in.  You couldn‘t support him...

MATTHEWS:  ... You mean the one where he got landslide Lyndon as his name?

EVERSON:  It may be.  I think this was in ‘54 and then the last time the Congress looked at this was in the late ‘80s.

MATTHEWS:  OK, so if church, your priest, your rabbi, whatever, your minister stands in front of your church and says vote for somebody, he‘s breaking the law?

EVERSON:  If he says vote for Chris, he can‘t do that, that‘s exactly right.

MATTHEWS:  And this is new or just newly enforced?

EVERSON:  No, it‘s not new.  But we‘re very concerned about the encroachment of these activities into the charitable sector, including churches and that‘s why we‘re stepping in.

MATTHEWS:  Commissioner of the IRS, what a job you‘ve got.  Thank you for your service.  I‘m just kidding.  Mark Everson—is it Everson or Everson?

EVERSON:  Everson.

MATTHEWS:  Mark Everson, thank you very much for coming up.

Up next, is the Iraq war making more terrorists, more terrorists? 

HARDBALLers Bob Shrum and Kate O‘Beirne will be here to talk about that. 

This is HARDBALL, only on MSNBC.

(COMMERCIAL BREAK)

MATTHEWS:  Welcome back to HARDBALL.  The HARDBALLers are here.  Bob Shrum is a HARDBALL political analyst and Kate O‘Beirne of the “National Review.”  Don‘t you have a title around here?  We already have specialist and expert on politics.  Everybody‘s got a title.

KATE O‘BEIRNE, NATIONAL REVIEW:  Washington editor.

MATTHEWS:  Let me ask you—let‘s ask—Shrummy you‘re here, let‘s go take a look at what we just saw professor Larry Sabato of UVA, a great political scientist.  Here‘s what he just on HARDBALL.

(BEGIN VIDEO CLIP)

SABATO:  I absolutely believe that he used the “N” word, that is absolutely correct and I do believe that.

(END VIDEO CLIP)

MATTHEWS:  Kate, he‘s talking about the senator from Virginia using a word which today is certainly unacceptable, has been for many, many years.  It‘s never been nice, but now it‘s unacceptable politically by anybody, and most people think it‘s really bad to use that word.  But he went to school 30 some years ago, it wasn‘t unheard of.  I guess the charge is, he used it distinctively, he used it regularly with malice.  It wasn‘t just something that he‘d said once in a road rage situation or something like, it is politically relevant?

KATE O‘BEIRNE, NATIONAL REVIEW:  Yes, it is politically relevant.  Chris, what‘s amazing is this year.  Here is somebody who ran for governor in a really contested race, we didn‘t hear any of this.  He ran obviously the first time, the senator knocked off the incumbent in a very hotly-contested race.  We heard none of that.  And—these kinds of charges are what‘s marked the race this year.  I don‘t know if it‘s the times.

MATTHEWS:  You can‘t accuse the enemy, in this case, the Democrats, of pushing it because he introduced macaca.  He had one of these bicentennial moments that it would be hard to ignore. 

O‘BEIRNE:  Well, far too much was made of that.

MATTHEWS:  Well, because he won‘t tell us where he learned the word.  If he wants to end this, he can say where the word came from.  He can‘t keep saying, I made it up. 

O‘BEIRNE:  It wouldn‘t end it though, Chris. 

But you‘re right.  You‘re right.  The charges from some of his former football players, although others on the team...

MATTHEWS:  Five have stood up for him by name, and there‘ll probably be more.

O‘BEIRNE:  ... but the backdrop, of course, was that incident a month ago. 

MATTHEWS:  Bob Shrum, sir, I want to ask you first, not your attitude, I know your attitude because you‘re a big liberal.  But let me ask you this, is this a campaign killer or is this a detour in the road, and we‘ll go back to the main issues in the campaign, are you a conservative or a  liberal, who do you like here? 

BOB SHRUM, HARDBALL POLITICAL ANALYST:  First of all, it isn‘t about being liberal.  It‘s about being decent.  When I was four or five years old, my father told me, you don‘t use that word.  I‘m now 63. 

(CROSSTALK)

MATTHEWS:  But I also think this country, is not—do not find that word strange. They find it awful today, they certainly didn‘t find it strange 30 years ago. 

SHRUM:  If somebody had used that word in the 1970s and people had known about it, they would have been in deep trouble.  But I think what is happening to George Allen...

MATTHEWS:  You mean a politician?

SHRUM:  ...  it‘s not just that he use this word, it‘s that...

MATTHEWS:  I wish we lived in a racially loving country like you guys describe it.  I keep looking at election returns, and when people go into voting booth, they don‘t vote all cheery and racial brotherhood, they vote straight white, OK.  So you...

SHRUM:  Chris.  Chris.

MATTHEWS:  ... You portray this country as above all that, as if he‘s below that. 

SHRUM:  No, I‘m not.  You‘re actually—you‘re not letting me get to my point.  My point is that what George Allen is doing is embarrassing the electorate in Virginia.  It is as Larry Sabato said, a state that has a different self-conception than it did 30 or 40 years ago.  Although, by the way, I think even Harry Bird would have been embarrassed by some of this stuff. 

It is a state that does not want a senator who becomes a national laughingstock.  And that‘s why I think it is such a big issue in this election. 

MATTHEWS:  So do you believe it‘s a voting issue? 

SHRUM:  Yes, I believe it‘s a voting issue.  I think people—look, I don‘t think people just go down a checklist of issues and say, I agree with this guy, I agree with this woman, I agree with this guy on this. 

I think people look at the person, too.  And what they‘re seeing of George Allen right now is something that I think is making them uncomfortable.  I wish Chuck Robb had done this stuff, or had revealed this stuff, or it had been revealed when he was running in 2000 against George Allen. 

O‘BEIRNE:  Well, Bob, maybe he didn‘t because he couldn‘t because maybe it‘s not true.  In fairness to Senator Allen, he vehemently denies the charges.  And in fact it is possible, Bob, to wear cowboy boots, to even chew tobacco, to admire the South, the Southern culture, without being a racist.  That‘s possible. 

SHRUM:  You know we went through this in March, we went through this in 2000...

(CROSSTALK)

MATTHEWS:  I tell you, it‘s not a pretty picture.  Do you think this could beat him, this marginalization of this guy? 

SHRUM:  Yes, that is what is happening to him.  And you cannot wave the Confederate flag and plead innocent on all this stuff. 

O‘BEIRNE:  But Bob, that‘s terribly unfair.  His opponent Jim Webb has written a book...

SHRUM:  I think it‘s terribly fair, OK.

(CROSSTALK)

MATTHEWS:  Bob, Bob, the confederate flag may be offensive, but it is not unfamiliar to our eyes.  First of all, we all know what it looks like because we have been seeing it all our lives somewhere.  It‘s somewhere all the time. 

We‘ll be right back with Kate O‘Beirne and Bob Shrum.  This is HARDBALL, only on MSNBC.

(COMMERCIAL BREAK)

MATTHEWS:  We are back with the Hardballers, “The National Review”‘s Kate O‘Beirne and Bob Shrum.

Kate, we were talking during the break about George Allen, and what we just saw, that amazing moment with Professor Larry Sabato of UVA.  Here is a major political scientist saying, he knows that George Allen used the “N” word. That‘s what he said.  He‘s now in the story. 

O‘BEIRNE:  I could not agree more, and I think you were exactly right to press him.  How does he know that?  Did he hear it first hand, which would be incredibly important, or did he hear is second hand, and who did he hear it from? 

If these kinds of charges are being made, people ought to willing to put their name on them, which some of the former football with George Allen have been unwilling to do. 

MATTHEWS:  But Bob, do you think when there‘s somebody accused of something really nasty like this that the sources should stand up and be forced to stand up by the reporter.  Even if it‘s Salon it‘s a Salon reporting operation?

SHRUM:  Sure.  And I think Salon actually—I mean, forced by the reporter initially?  No, I think in the aftermath of the story, they ought to get pressed, and they ought to say what they know, and ought to own up to it, and they ought to put their name on it. 

But I have a lot of respect for Larry Sabato, who hasn‘t always been uncritical of me.  But I think that he is a truthful person and I think he‘s saying what he knows. 

MATTHEWS:  But I am talking about the Salon story that ran on the wire.  Shouldn‘t you have to have named sources for something that is really close to character assassination if it‘s not true? 

SHRUM:  Well, I think you have to set a standard for that, Chris. The “New York Times” has been grappling with it, and for stating why people want to be anonymous sources, and maybe that‘s what Salon should do. 

But the story has moved way beyond Salon now.  Your interview with Larry Sabato, I think, has added more fuel to the fire of this story.  But it‘s not just the “N” word.  It‘s the “M” word, macaca, it‘s the Confederate flag, it‘s the guy‘s whole history. 

MATTHEWS:  Let me get back to a point of political intelligence here.  Is Bill Clinton smart to challenge these attacks on his record in fighting terrorism in the 1990s, Bob, getting into this face-to-face with Chris Wallace yesterday? 

SHRUM:  Well, three things.  One, I know why he‘s frustrated, because there has been a campaign of right wing lies against him.  When he attacked the camps in 1998, he was accused of wagging the dog to cover up Monica Lewinsky.  Number two, it‘s probably smart politics...

MATTHEWS:  What‘s this campaign?  Who is running this campaign? 

SHRUM:  I think the right wing‘s been running a campaign against Bill Clinton since 1991.  Now, I want to be critical of him on one thing.  I think it‘s smart politics for him to say he is showing Democrats how to fight back, but it‘s wrong and it‘s not true to say that Chris Wallace is somehow or other a right wing hit man. 

He‘s unbiased as far I know as a reporter, he‘s tough.  I‘ve mixed it up with him, but he is one of the...

(CROSSTALK)

MATTHEWS:   Well, I agree, but do you think that question was a good question, a legitimate question? 

SHRUM:  Of course the question was a legitimate question.  And you know, I think the president just is incredibly frustrated, you know, if he had taken this out on Sean Hannity, it might have been a more appropriate target.  But when he said, when he said, Chris, wipe that little smirk off your face, the real question here is when is George Bush going to wipe that little smirk off Osama bin Laden‘s face.

O‘BEIRNE:  Chris, I though he had made up his mind...

MATTHEWS:  OK, we got to go.  I‘m sorry, please come back, you‘re always welcome...

O‘BEIRNE:  But then he actually got really mad about it.

MATTHEWS:  Getting mad‘s OK when you‘re right. 

Anyway, Kate O‘Beirne, Bob Shrum.  We get mad here. 

Right now it‘s time for Tucker.

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

END   

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