updated 3/27/2009 11:47:05 AM ET 2009-03-27T15:47:05

Guest: John Barrasso, Allyson Schwartz, Joe Conason, Jim Richards, Maureen Santora, Lt. Jim McCafrey, Tucker Bounds, Chris Kofinis, Jonathan Mann

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DAVID SHUSTER, HOST (voice-over): Tonight, President Obama conducts the first online town hall in White House history.

BARACK H. OBAMA, PRESIDENT OF THE UNITED STATES: We, as a nation, have already begun the critical work that will lead to our economic recovery.

SHUSTER: But the Democratic Party fight over his agenda intensifies.

MoveOn.org launches radio ads at Democratic centrist.

UNIDENTIFIED MALE: Call Senator Bayh and tell him to vote for the Obama budget.

SHUSTER: “Follow the Money.” We will show you the American company setting up shop in the Cayman Islands to avoid paying taxes.

Later, the growing outrage over Ground Zero in New York.

UNIDENTIFIED MALE: Let the people speak.

SHUSTER: 9/11 families have a message for President Obama and will deliver it live on this show.

Karl Rove‘s latest comment about the president lands Rove back in “Hypocrisy Watch.”

And the things I thought you should know.

(MUSIC)

SHUSTER: This guy is writing a song every day and just wrote this one. A live interview with Jonathan Mann.

And Twitter time.

All tonight on 1600 PENNSYLVANIA AVENUE.

UNIDENTIFIED MALE (singing): But Shuster‘s not afraid to have a little fun.

(END VIDEOTAPE)

SHUSTER: Standing firm, day 66 of the Obama administration.

Welcome to the show, everybody. I‘m David Shuster.

With Republicans crying foul about a liberal, big government agenda, and conservative Democrats wringing their hands about deficits, President Obama today took his case for his budget straight to the American people. This afternoon, the president held the first-ever online town hall live from the White House. More than 100,000 questions were submitted, and an estimated 70,000 people watched the Q&A on the Web.

The president used the opportunity to argue that his budget now being hashed out in Congress is an essential part of fixing the economy.

(BEGIN VIDEO CLIP)

OBAMA: In the end, it‘s a recovery that will be measured by whether it lasts, whether it endures, by whether we build our economy on a solid foundation, instead of an overheated housing market or maximized out credit cards or the slight of hand on Wall Street, whether we build an economy in which prosperity is broadly shared. That‘s what the budget I expect to sign is intended to do.

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SHUSTER: The president‘s budget is moving closer to becoming reality. Today, Democrats in Congress pushed versions through key committees, putting the budget on track for a full vote next week.

As the Republican criticism mounts, the president doesn‘t seem particularly concerned.

(BEGIN VIDEO CLIP)

OBAMA: To the bunch of the critics out there, I‘ve already said, show me your budget. Show me what you want to do. And I‘m happy to have that debate, because I believe in the vision of the Democratic Party.

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SHUSTER: Today, a group of House Republicans took up the president‘s dare, presenting a 19-page pamphlet that calls for tax and spending cuts.

Let‘s bring in...

(BEGIN VIDEO CLIP)

REP. JOHN BOEHNER ®, MINORITY LEADER: The president said we haven‘t seen a budget yet out of Republicans. Well, it‘s just not true, because here it is, Mr. President.

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SHUSTER: And at the White House, there was some reaction to that.

Here is White House spokesman Robert Gibbs.

(BEGIN VIDEO CLIP)

ROBERT GIBBS, WHITE HOUSE PRESS SECRETARY: It took me several minutes to read it.

(LAUGHTER)

GIBBS: It‘s interesting to have a budget that doesn‘t contain any numbers. I think the party of “no” has become the party of no new ideas.

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SHUSTER: For more on the GOP budget proposal, joining us now is Senator John Barrasso. He is a Republican from Wyoming.

And Senator, first of all, explain how come the Republican senators decided not to join your House colleagues in introducing a budget counterproposal?

SEN. JOHN BARRASSO ®, WYOMING: We‘re going to have at least 50 amendments next week, taking a look at the Democrat proposal, because it‘s the president‘s job to propose a budget. And this budget to me is a threat to the American people.

You cannot spend that kind of money. The president is trying to spend his way out of our economic downturn, he‘s trying to borrow his way to be debt free, and you just cannot borrow your way out of debt or spend your way out of a recession.

SHUSTER: What, specifically, in the budget you say is a threat?

BARRASSO: Well, the size of it. The overall size.

The president is going to lead to a bigger deficit in the next two years that—George Bush had a deficit of about $500 billion. Nancy Pelosi called that criminal. Well, then, what does she call the Obama budget, with its deficit of over a trillion dollars?

He is building up an incredible amount of debt. We cannot as a nation afford that kind of debt. American people cannot handle it.

SHUSTER: But Senator, what about the argument that the budget deficit, it‘s going to be even higher if the economy does not recover? In other words, if the economy does not recover, and there aren‘t more tax receipts, the deficit‘s going to be even higher. What about the argument of essentially using, spending the money to create jobs so, essentially, you bring the economy back faster?

BARRASSO: Well, that‘s why I supported a limited, targeted, temporary effort with the stimulus package, about half the size of what the Democrats passed and the president signed, because I thought we should focus there at that point. But now we‘re talking about a spending plan that is going to take our debt to astronomical numbers.

To me, it‘s an irresponsible budget. It‘s a threat to the American people and it‘s just reckless on the president‘s part to do this.

He has said that his budget is inseparable from the economic recovery. I think his budget is what prevents making the economic recovery. The American people cannot afford this.

And I appreciated his town hall meeting. He should have a town hall meeting and talk to people in Wyoming, where we balance our budget every year, where the governor has a line item veto, and we budget every two years so we have more time to think these things through, because this is a budget that does it right.

SHUSTER: And because of the balanced budget in Wyoming and the other 49 states, the federal government is essentially having to run a deficit and send money to the states so that teachers and police and firefighters in your state don‘t get furloughed.

Here‘s the question though for you. As far as responsibility is concerned, isn‘t there responsibility on elected politicians who say, OK, the budget is bloated to states? Specifically, what should be cut? What are the top choices that you would be willing to articulate right here?

BARRASSO: Right now we spend $1 out of $6 in this nation on health care. The president now comes with $600 billion as a “down payment” on health care? There is enough money in the system, and both the Republican and Democrats on the Budget Committee agree with that.

And then what‘s he doing to pay for it? He‘s taxing electricity. Every time you flip on the switch, electric prices are going up, energy prices are going up.

We need to keep energy prices low. Why throw an extra tax on the American people? The president...

SHUSTER: Well, the $600 billion, isn‘t that a transition cost? In other words, if you‘re going to fix health care, as I think even some Republicans want to do, there is a transition cost, right?

BARRASSO: We spend more on health care, $1 out of $6, than any other nation in the country. I practiced medicine for 25 years. There is enough money in the system. There‘s also waste and fraud and abuse in the system. We can do a much better job without throwing all this additional money.

Plus, the cap and trade scheme that the president proposes is going to drive up electricity costs for everyone. To say that that‘s not a tax is not really being sincere. People are going to have to pay more out of their own pockets and have less of their own hard-earned money in their own pockets to spend.

This economy grows when people have more of their own money to make decisions. And this is a budget, to me—as you know, it spends too much, it taxes too much, and it borrows too much.

SHUSTER: Well, and I think the problem is the economy is in too awful shape. And it does sound like a lot of people, though, aren‘t willing to make some of the tough decisions.

In any case, Senator John Barrasso, Republican from Wyoming.

A pleasure always having you on, Senator. Thanks for coming on tonight.

BARRASSO: Thanks, David.

SHUSTER: You‘re welcome.

In addition to the traditional fight between the Republicans and the Democrats, there‘s also a fascinating budget fight that‘s going on now between Democrats. Liberal activists are continuing a full-court press for the president‘s budget, willing to take down any Democratic defectors they think are standing in the way, and possibly agreeing with the argument you just heard from Republicans like Senator Barrasso.

MoveOn.org is now running this ad targeting some moderate and conservative Democrats...

(BEGIN VIDEO CLIP)

UNIDENTIFIED MALE: President Obama‘s new budget twill make Wall Street pay its fair share and use the savings to invest in energy, education, and health care, to help get our economy moving again. Wall Street firms oppose it, but given their recent track record, that‘s a good sign.

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SHUSTER: The ads are customized, and they go on to essentially target and name specific members of Congress.

Congresswoman Allyson Schwartz joins us now. She is a key Democrat from Pennsylvania, vice chair of the House Budget Committee.

Congresswoman Schwartz, is it helpful to have a group like MoveOn.org targeting some of the wavering or centrist Democrats?

REP. ALLYSON SCHWARTZ (D), PENNSYLVANIA: Well, let me say, we just came out of a very long budget meeting yesterday, and Democrats from really the broad spectrum of who we are—and we really come from a number of different places, as you know, and different political thoughts. And we came together yesterday to back the president‘s budget.

We obviously made some changes. That‘s our job as members of Congress. But really, more conservative Democrats, more progressive Democrats, and those of us in the middle really came together because we know this country needs us to do that. And they need us to really pass a sensible budget, one that really meets fiscal responsibility, and meets some of the demands of the American people and our economy, if we‘re going to really grow and build this economy and be economically competitive in the future.

SHUSTER: But you‘d acknowledge that the Democratic Party isn‘t completely unified. I mean, you‘ve got the centrist Democrats, some of the blue dogs on the House side, some of the moderate Senate Democrats who are expressing some pretty deep reservations about this budget.

SCHWARTZ: Well, you know, this is a budget that really creates two emotions for us, I guess. And that is that we inherited a very terrible economy.

You know, this recession that we‘re dealing with is really a problem for all of us, families and businesses and, of course, the federal budget as well. And so it‘s hard to really be gleeful about having inherited a $1.2 trillion deficit this year. But we are also, on the other hand, really proud of the fact that we are finally going to tackle some of the major issues before us.

Yes, the deficit, we‘re going to cut that in half in four years.

That‘s an ambitious and tough goal, but we‘re going to try and do that. And we‘re going to make investments in some of the critical areas we know we need to do in finally figuring out how to contain costs and improve quality and extend coverage to all Americans in health care.

In energy, to really create energy independence and energy efficiency and alternative fuels that are homegrown, those green jobs. It‘s about time for us to tackle that.

And, of course, educating Americans so that we can be prepared for the jobs of the 21st century. These are...

SHUSTER: But having said all that...

SCHWARTZ: These are—having said all that, it‘s going to be hard.

SHUSTER: Having said all that, the politics is intriguing, is I think what is going to capture a lot of people‘s attention. And here‘s how “The New York Times” put it in an excellent analysis by reporter Jeff Zeleny.

He says, “As a party expands its ideological and geographic reach, as the Democrats have in the last two elections, it becomes harder to hold together, forcing its leaders to spend time papering over internal differences even as they confront a smaller but more united opposition.”

Would you agree with that?

SCHWARTZ: Well, look, let me tell you, I think it‘s great that the Democrats represent urban and suburban and rural areas all across this country. It does really force it, if you want to call it that, but really to make sure that we are looking at the concerns and needs responsibly for really all of the American people. And that‘s a good thing for our caucus. It‘s a good thing for the American people, for us to be looking and representing a really broad view, and then figuring out how to find the common ground and come together, and find those solutions for the American people.

That‘s what they want us to do. And as Democrats, you‘re absolutely right, we do actually represent a broad spectrum of Americans. And we certainly have the debates, as we should. We try and modify the budget, as we do most legislation, to make sure that it does reflect that diversity of opinion within our caucus and within the American people.

SHUSTER: Well, that diversity is certainly fascinating politics on so many levels.

In any case, Congresswoman...

SCHWARTZ: It does sometimes make it a little bit harder, but that‘s what democracy is all about.

SHUSTER: We hear you.

Congresswoman Allyson Schwartz, the Democrat from Pennsylvania.

Congresswoman, thanks for coming on. We appreciate it.

SCHWARTZ: You‘re welcome.

SHUSTER: Up next, we “Follow the Money” to the Cayman Islands. Several U.S. banks have set up offshore accounts and offices in order to avoid paying taxes like the rest of us.

We will bring you the details.

Then, at the half-hour, the growing outrage over the Ground Zero rebuilding debacle. Some families of 9/11 victims want President Obama to get involved. They will deliver a message to the president live on this program. Again, that‘s at the half-hour.

And we‘re taking your questions and video suggestions over Twitter. Just go to twitter.com/shuster1600. We will ask a few of your questions to a political news junkie and musician who just wrote this...

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UNIDENTIFIED GROUP (singing): Sixteen, sixteen, hundred, hundred, Pennsylvania Avenue on MSNBC.

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SHUSTER: The outrage over AIG‘s bonuses has been justifiable, but the $165 million pales in comparison to another abuse going which has been going on for much longer and involves a whole lot more money. We‘re talking about offshore tax havens.

Many of the same companies that have received taxpayer bailout money have also done business in these so-called tax havens for years. And let‘s look at just a few of America‘s biggest companies with branches in the Caymans, for example.

Bank of America, 59 separate subsidiaries in the Caymans. Morgan Stanley has 158. Citigroup, 90.

The Government Accountability Office says there could be legitimate reasons to set up branches in places like the Cayman Islands, Andorra or Switzerland, but until there is transparency, we will not know what those reasons are. And right now there‘s no transparency.

Let‘s bring in Joe Conason, columnist for Salon.com and national correspondent for “The New York Observer.”

And Joe, what kind of money are we talking about with all of this?

JOE CONASON, COLUMNIST, SALON.COM: Well, David, the last time this—anybody made a serious estimate of these numbers, it came to something like $12 trillion sheltered in offshore tax havens worldwide, and an estimate of about $100 billion in lost revenues to the IRS, people avoiding taxes illegally in those same tax havens. And as you mentioned, it‘s, in fact, all of the companies that have received taxpayer bailouts have some kind of tax haven subsidiaries, many of them with lots of them.

Now, you could imagine, there is some reason to have, I guess, a branch in the Cayman Islands, because people might want to do some banking there. But why you would need 90 subsidiaries there is really an interesting question.

SHUSTER: And I understand that the lobbying effort by some of these financial institutions has essentially forced or put a lot of pressure on these local governments in the Caribbean, in the Caymans, or whatnot, to essentially make sure that there‘s no access to these records, that it‘s almost impossible to find out what these documents might show or what‘s really going on.

Right?

CONASON: That‘s correct. They managed to create a situation of competition among these tax haven countries where they all are assuring hedge funds and investment banks and bank holding companies of less and less regulation, less and less cooperation with governments like ours, or governments of our allies in Europe, who are trying to find out how taxes are being evaded by wealthy individuals and corporations in these tax havens.

SHUSTER: We know that there have been some efforts to get at this. There was an investigation into UBS that resulted in a $780 million settlement. And yesterday, President Obama asked former Fed chairman Paul Volcker to lead a tax code review panel. And part of their job will be to close loopholes.

How can they do that? I mean, is there a simple way, or is it much more complicated for Volcker and any panel that wants to try to get at this?

CONASON: Well, I think there‘s—one thing is to close tax loopholes. The other is to make sure that all of these tax havens begin to cooperate with our government and other governments around the world in turning over information about tax evasion and tax evaders so that there‘s no longer the incentive to shelter money in places like this in an attempt to avoid taxes.

Now, it means breaking down these barriers to information, basically. And, you know, the president took a great interest in this when he was in the Senate. I mean, this is not a new topic for him. He knows what‘s going on with this, and I think it‘s a healthy development that the government‘s finally going to take a hard look.

SHUSTER: Well, an even healthier development, I think we would agree, is when Treasury Secretary Geithner, who is meeting with the banks‘ CEOs, perhaps as early as tonight, if he would bring this up, that would certainly send the right message. Who knows whether the banks would cooperate, but it certainly would be great if some of these officials would start taking an even stronger interest now that they‘re in office.

In any case, Joe Conason, great piece in Salon. And a fascinating report by the Government Accountability Office.

And Joe, thanks so much for dissecting it for us.

CONASON: Thank you so much.

SHUSTER: Coming up, Karl Rove has written another column criticizing President Obama. And once again, Rove has landed in “Hypocrisy Watch.” What is wrong with Bush‘s brain?

But first, more from the GOP bizarro world. RNC Chairman Michael Steele says he planned the fight with Rush Limbaugh. You know, the one where Rush essentially called him ineffectual. Apparently, that was just part of Steele‘s master plan.

Watch.

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MICHAEL STEELE, RNC CHAIRMAN: I am very introspective about things. I don‘t do—I am a cause-and-effect kind of guy, so if I do something, there‘s a reason for it. Even if it may look like a mistake, a gaffe, there is a rationale, a logic behind it.

DON LEMON, CNN: Even with the current events and news?

STEELE: Yes. Yes.

LEMON: There‘s a rationale behind Rush, all of that stuff?

STEELE: Yes.

LEMON: You want to share it with us?

STEELE: Sure. I want to see what the landscape looks like. I want to see who yells the loudest. I want to know who says they‘re with me but really isn‘t.

LEMON: How does that help you?

STEELE: It helps me understand my position on the chessboard.

(END VIDEO CLIP)

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SHUSTER: Welcome back to 1600.

Former Bush 43 adviser Karl Rove is again criticizing President Obama‘s approach to the economic crisis. Furthermore, Rove is accusing the president of misleading people.

And that takes us to tonight‘s “Hypocrisy Watch.”

First the background.

Karl Rove, AKA “Bush‘s brain,” is paid to give commentary on Fox News. He also writes a regular column for the extremely conservative “Wall Street Journal” editorial page.

In his latest column, Rove criticizes President Obama on several fronts and describes the president as “... one who seems to think that repeating a false argument will make it true.”

Well, that‘s interesting, because repeating a false argument was a key strategy in the Bush White House, especially in the run-up to the Iraq war. Remember that little adventure?

Before the war, Bush officials, led by Karl Rove, formed a team known as the White House Iraq Study Group. Their job was to craft a message that would sell the Iraq War to the American public. And one of the most effective talking points was the claim that Saddam Hussein had nuclear weapons.

(BEGIN VIDEO CLIP)

RICHARD CHENEY, FMR. VICE PRESIDENT OF THE UNITED STATES: There is no doubt that Saddam Hussein now has weapons of mass destruction.

GEORGE W. BUSH, FMR. PRESIDENT OF THE UNITED STATES: The British government has learned that Saddam Hussein recently sought significant quantities of uranium from Africa.

CHENEY: We believe he has in fact reconstituted nuclear weapons.

(END VIDEO CLIP)

SHUSTER: All of those claims were false. No doubt about WMDs? Even Bush officials had doubts.

Uranium from Africa? The administration knew that was false.

Reconstituted nuclear weapons? There was no evidence.

But the Bush-Cheney-Rove team repeated the claims over and over.

Karl, I appreciate that it may be difficult for you to wake up each day, given what you and your Bush administration colleagues did to this country. Nonetheless, Karl, when you accuse President Obama of misleading the American public, that‘s hypocrisy. And it‘s wrong.

Coming up next, the rebuilding debacle at Ground Zero. The 9/11 families have had enough. They want President Obama to get involved, and they will make their televised pitch to the president live, next on 1600.

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SHUSTER: Welcome back to 1600 PENNSYLVANIA AVENUE. As we reported earlier this week, the outrage over Ground Zero in New York is intensifying. Nearly eight years after the 9/11 attacks, the rebuilding effort continues to be a debacle. The Freedom Tower plan has engineering issues and economic problems. The subterranean memorial that‘s part of the plan has been loudly criticized. And most 9/11 families, firefighters, and police unions say they detest the way this entire project has been handled.

These groups have long argued that the only surefire way to rebuild and recover and reclaim America‘s spirit is to rebuild the Twin Towers the terrorists knocked down. Build those Twin Towers taller, stronger, and safer. They point to this model, some sophisticated blueprints and a viable financing plan.

But New York officials refuse to consider any alternative to the Freedom Towers. So the 9/11 families now want President Obama to get involved.

Joining us from New York is Jim Richards, a retired chief for the FDNY. His son was also a firefighter and died on 9/11. Maureen Santora also lost her son. And Lieutenant Jim McCaffrey of the FDNY lost his brother-in-law. He is also the co-chairman of the Advocates for 9/11 Fallen Heroes Memorial.

Jim Richards, let‘s start with some background. You met with President Obama in February to talk about Gitmo. Mr. Obama apparently said you have an open line to him. Is that correct?

JIM RICHARDS, FDNY RETIRED: Yes, they have kept us informed. We‘ve had an open line with the White House. And they told us what they‘re doing with the terrorists. And, you know, we agree with it and hopefully he‘ll move forward to prosecute them.

SHUSTER: Now, on the issue of Ground Zero, Maureen, the president and his staff do tend to watch the show. You have a direct line to them now. As far as Ground Zero, the debacle there, what do you want the president to do?

MAUREEN SANTORA, SON KILLED ON 9/11: What I would like President Obama to do is to come and physically visit the site, and to take a look at the proposed Twin Towers, and to look at the tower number—building number seven, which has been up for several years. I think if he comes and physically views what is, he will be very disappointed at the fact that we are not further along, that families have not been involved. Families have not been included in any of the planning, although we have attended every single meeting that was offered.

And I would like the president to come and see this for himself.

SHUSTER: Lieutenant McCaffrey, what‘s the symbolism of rebuilding the Twin Towers? And why should the president get involved in that?

LT. JIM MCCAFREY, BROTHER IN LAW KILLED ON 9/11: I think the president should get involved because this is, after all, America‘s memorial. Not just New York City was attacked that day, not just Washington, D.C., not just Pennsylvania. This is America‘s memorial. The United States of America was attacked. So it‘s—it certainly makes sense to have the president of the United States become involved in a process that has languished for far too long; far too many mistakes have been involved, and we would welcome his input.

SHUSTER: Just today, there was yet another outrage I guess. They have now officially—the Port Authority is no longer calling this plan the Freedom Tower. They‘re going to call it World Trade Center. Jim Richards, I thought the only World Trade Center in the minds of Americans were the Twin Towers.

RICHARDS: Yes, this is another example of the arrogance and the audacity of the Port Authority. They think they own that land down there. They‘ve taken nobody into consideration since day one. They have immunity from the building and fire codes, and they just do whatever they want. The exits in that memorial are not safe. There‘s a 700-yard run over to get out and then a seven-story climb.

This is a disaster that‘s going to be visited by the most people in the world. We have bus garages underneath the Freedom Tower or the one World Trade Center, as they call it, which was advised against in 1993. They‘re doing it again.

We need somebody to step in and take charge here, and use some common sense. People—we are closing fire houses. We have no money around the world. Yet, we‘re going to spend 40 million dollars a year to maintain this museum? It‘s inappropriate and not called for at this time. Do something simple and nice that the families would like.

SHUSTER: And finally, Maureen, as far as the office tower itself, are you sure that your son would have wanted the Twin Towers rebuilt?

SANTORA: I can tell you unequivocally that my son Christopher would have wanted both of these towers to be rebuilt to show the world and to show America that although we were hit hard, we are resilient, we have come back again, and we are stronger than ever. He would absolutely want the two buildings to be put back.

SHUSTER: Maureen Santora, Jim Richards, Lieutenant McCafrey, thank you so much. We‘ll now follow up with the White House in the next 24 hours to see what their response is to your appeal that President Obama get directly involved in this mess. Thank you so much for coming on.

SANTORAH: Thank you.

SHUSTER: Let‘s bring in our panel really quickly. Chris Kofinis is a Democratic strategist, and Tucker Bounds is a Republican strategist. But this is not a political issue. First, Tucker, the risks and the rewards of any politicians getting involved in this.

TUCKER BOUNDS, REPUBLICAN STRATEGIST: Well, you know, you look back at this chapter, from the very time of the crisis, now, here we are years later, and this memorial has been—time after time, there have been political disputes and differences between the families and the city and the Port Authority. It‘s a political bee‘s nest.

But this is a president that has shirked politics as usual. I think it‘s an opportunity for him to show real leadership, and live up to some of the campaign promises we all heard as he won his presidency. So I would expect to see him do something here.

SHUSTER: Chris, how difficult would it be for the president to look at these 9/11 families who want the Twin Towers back and say, you know what, the terrorists knocked down these buildings for a reason. We‘re not going to give in. It‘s been a mistake the last eight years with this Freedom Tower thing. We‘re going to rebuild the Twin Towers. There‘s a plan to make them stronger, safer. We‘re America. We‘re going to bounce back. How difficult would that be for the president?

CHRIS KOFINIS, DEMOCRATIC STRATEGIST: I think it would be pretty difficult. There‘s so much emotion. You saw it in those family‘s eyes and voices. There is a lot of emotion involved in this issue and rightfully so. There are so many local, state, and political forces involved. You know, I think it is a tragedy that we haven‘t moved forward and we haven‘t moved faster to build a memorial and build a structure the way they should be built. But, you know, for the president getting involved right now, I think that‘s difficult. But that‘s a call for the White House.

SHUSTER: Chris Kofinis and Tucker Bounds are sticking around. It‘s such an unbelievable issue and fraught with so many emotions and certainly some politics. We‘re going to stay on it.

Coming up next, President Obama meets the web, holding the first ever White House web town hall.

(BEGIN VIDEO CLIP)

OBAMA: There was one question that was voted on that ranked fairly high, and that was whether legalizing marijuana would improve the economy and job creation. And I don‘t know what this says about the online audience, but the answer is no, I don‘t think that is a good strategy to grow our economy.

(END VIDEO CLIP)

SHUSTER: More highlights right after the break.

And still ahead, singing for change. He‘s taken on Tim Geithner, called for Paul Krugman to get a cabinet position, and called out President Obama for not prosecuting the Bush administration. Now musician Jonathan Mann is focusing on—us! He‘ll be here live with the debut of the new anthem for this show.

And your Twitter questions for Jonathan or me are coming up at the end

of the hour. Just go to Twitter.com/Shuster1600 or use the link at

Shuster.MSNBC.com

(COMMERCIAL BREAK)

SHUSTER: Welcome back to 1600 PENNSYLVANIA AVENUE. Today, President Obama held the first ever online White House town hall. The questions of energy policy, the economy, and health care prompted some personal answers.

(BEGIN VIDEO CLIP)

OBAMA: When Sasha, our little precious pea, when—she got meningitis when she was three months old, very dangerous. You know, the doctors did a terrific job. But, frankly, it was the nurses that were there with us when she had to get a spinal tap, and all sorts of things that were just bringing me to tears.

(END VIDEO CLIP)

SHUSTER: This event was an opportunity for the president to bypass the traditional press corps and, at least according to the White House, connect to an audience outside of Washington. It‘s an environment the president has sometimes criticized.

(BEGIN VIDEO CLIP)

OBAMA: It‘s always nice to get out of Washington, at least for a little bit, and to come to places like this. The climate‘s nicer. So is the conversation sometimes.

It‘s always, always nice to get out of Washington for a little bit.

Recharge your batteries.

Every once in a while, we like to get out of this town. It is important to get out of the hall of mirrors here.

(END VIDEO CLIP)

SHUSTER: Back with us now are Chris Kofinis and Tucker Bounds. This comment about, Chris, about the hall of mirrors, yet he still needs the hall of mirrors, right.

KOFINIS: Well, to some extent. Here is the thing about D.C., there is a Beltway blindness to the way we talk about politics and think about politics. And that sometimes does not relate to the reality that average people live through or experience. So, you know, the town hall today, which I thought was a brilliant—brilliant use of new technology, I think the Obama administration realizing that we live in a 24/7 media cycle, both online and offline. And using these new tools, whether it‘s Facebook, Twitter, or in this case the web, in a town hall, it just gives you the ability to communicate to millions of people. It‘s very smart.

SHUSTER: Tucker, I see you shaking your head.

BOUNDS: You know, this was the same president that decried the permanent campaign. This is clearly a permanent campaign tactic. And, you know, we were talking earlier about him bypassing the main stream media. Bypass them for what? He‘s—he gets great main stream media coverage. And, you know, I think that this act that you just mentioned about him talking about getting outside of Washington is going to wear thin. As a tactic, you know, that may hang around for the next year or so.

But when he‘s running for re-election, which basically he‘s doing today, in three years, he is a man of Washington. It‘s a hokey act.

KOFINIS: It‘s—couldn‘t be more wrong. Here‘s the reality. It is a smart way to not only build your capital, but maintain your political capital. That‘s what smart presidents do. Presidents have been using different formats to communicate with the American people since FDR. Now, of course, you have presidents like President Bush who couldn‘t do that as effectively.

To be honest, listen, as you probably know better than anybody, John McCain couldn‘t use these types of technology effectively, which is one reason why—

(CROSS TALK)

SHUSTER: Well, before we go down that road --

(CROSS TALK)

SHUSTER: Let‘s just state for the record Tucker disagrees. Before we go down that road, there was another part of this that was so intriguing. That is from the press conference the other night. That is when the president ruffled some feathers in the White House press corps by essentially breaking some of the rules. He has called, for example, in his first press conference on a blogger. And he, of course, chose to bypass the ultimate inside Washington event, the Gridiron dinner.

Then on Tuesday, he bypassed the big newspapers to call on smaller publications, like “Stars and Stripes” and “Ebony.” Among the big papers that got no love, here they are: the “Washington Post,” the “New York Times,” the “Wall Street Journal” and “USA Today.” Tucker, wise idea to bypass the big papers in a news conference?

BOUNDS: I don‘t think it is a wise idea, particularly when newspapers are hurting as badly as they are. They are the institution, cornerstone of American journalism. These are big papers that deserve—the cream has risen in the journalism industry to those papers. They‘re going to get real questions out of there. I think it‘s notable—And Alex Cohen, the former press secretary of the RNC mentioned this, and it was in “Politico” this morning. What‘s really noticeable is that he bypassed all the regional newspapers that are dying on the vine.

Here is an industry that needs help. They pay for those seats at the press conferences. They better get questions. These other questions, they may be meaningful. But you need—

KOFINIS: Apparently President Obama not only has to fix the worst economic crisis since the Great Depression, that was passed on by President Bush, he now has to fix the newspaper industry? I mean—

BOUNDS: He has to answer questions from real reporters. Sorry.

KOFINIS: He‘s done more interviews with different formats and different reporters than probably any president in this short amount of time. He is not lacking of talking to reporters. I think the strategy of expanding the map, if you will, in terms of who you talk to, I think, is a smart thing to do. It‘s not like in the coming weeks and months, the “New York Times,” the “Washington Post” and the “Wall Street Journal” aren‘t going to have access to talking to the president or the White House. They have constant access.

BOUNDS: “New York Times is laying off—five percent pay cuts across the board.

KOFINIS: You want to put that at President Obama‘s door?

BOUNDS: I think they should be able to have access to ask questions of the president.

SHUSTER: What about the argument, Tucker, that OK, he‘s bypassing the major newspapers, we can debate whether that‘s good or bad. But he is taking follow up questions at these news conferences, something President Bush did not do.

BOUNDS: Well, you look at President Obama‘s performance versus President Bush in a press conference and they‘re not really comparable. I mean, we speak honestly here. They‘re not. President Obama is very skilled at taking questions from reporters. We just are wondering why would he not take questions from the very best reporters that are there, who have the right—the widest reach of coverage?

(CROSS TALK)

SHUSTER: What about the argument that maybe then you hurt yourself in terms of your relationship with the “New York Times” or “USA Today” when you really need them, when that story is breaking late; they are chasing down a story and are about to go with it. And you need to call them and say, wait a second, there is information you don‘t know. I‘m asking you to hold off for a day so we can explain it. That level of trust may not be there because of what happened the other night.

KOFINIS: I don‘t buy that. One, you had President Obama sit down with the “New York Times” just a few weeks earlier for a lengthy interview. And the notion that somehow only the elite newspaper reporters should be the ones called on just—I just don‘t think that reflects the reality.

(CROSS TALK)

SHUSTER: Here‘s the other part of it, the third part of it, which is also so intriguing: during the campaign, as Tucker well knows, the Obama campaign had something like 13 million e-mails in their database. And they are now essentially—some people who did not go into the White House are working with the DNC to try to leverage that support. They have run their first ad supporting President Obama‘s budget, trying to rally that support. Here is the ad. Watch.

(BEGIN VIDEO CLIP)

UNIDENTIFIED FEMALE: Thousands are going door to door as part of Organizing for America, gathering support for President Obama‘s plan to invest in America‘s future. You can help, too. Call Congress and tell them to support President Obama‘s budget plan to get our economy moving again.

(END VIDEO CLIP)

SHUSTER: Can you get people as fired up about rallying for a budget as you can for an election?

BOUNDS: No. No you cannot. What they‘re doing is they‘re taking on Democrats. They‘re trying to take a moderate stance versus spending. And they‘re going right at the targeted states, right at the targeted districts. They‘re running a permanent campaign. That is a campaign ad that is being run in March of 2009. That should be concerning for all of those Democrats that wanted a change. They wanted to shirk the politics as usual. That‘s what they voted for in Barack Obama and they‘re not getting it.

KOFINIS: I‘m sorry. You know, to hear anyone who is affiliated with the Republican party and President Bush talk about permanent campaigns—

BOUNDS: We lost for a reason.

KOFINIS: No, you lost because you had the wrong ideas. The reality, listen, this is a very smart thing what they‘re doing. They‘re leveraging, you know, their grass roots army, which is millions strong, to go out there and, again, push for their agenda. In fact, what‘s even more interesting about this is this was the Republican strategy. The Democrats have now taken away and basically taken it to the next level.

This grass roots strategy is going out there and organizing on the ground was what Republicans were much better at in the ‘90s and in the early part of the 21 century. Now we have taken that to the next level. That‘s why Obama is president.

SHUSTER: I‘m not sure it‘s going to work. But what is so intriguing is I feel like we‘re sort of at the threshold of a new frontier, whether it‘s trying to leverage your campaign supporters to go rally for a budget, whether it‘s going above the heads of the main stream media, going to reporters a lot of people have never heard of, or whether it‘s doing these sort of town halls over the Internet, as the president did today.

They are certainly trying something new. Whether it works is a whole another question. But in any case, I got the last word.

Tucker Bounds, Republican strategist, Chris Kofinis, democratic strategist, you guys are the best. Thanks so much for coming on.

Still ahead on 1600 --

(BEGIN VIDEO CLIP)

JONATHAN MANN, SINGER/SONG WRITER: This comes from David Shuster, who has a show on MSNBC called 1600 PENNSYLVANIA AVENUE. He wanted me to write a song about him and his show. So here it is.

(END VIDEO CLIP)

SHUSTER: We are very excited about this and the wait is almost over. We will unveil in full the new 1600 anthem, put together by political song writer Jonathan Mann. He will join us live and talk about his effort to write a song every day when 1600 PENNSYLVANIA AVENUE returns.

(COMMERCIAL BREAK)

(BEGIN VIDEO CLIP)

(SINGING)

(END VIDEO CLIP)

SHUSTER: Welcome back to 1600. That was Jonathan Mann singing an ode to “New York Times” columnist and Nobel Prize winner Paul Krugman. That‘s just one of the many songs Jonathan has written recently. In fact, he‘s been writing a song a day. Jonathan Mann joins us now from Berkeley, California.

Jonathan, welcome. You also wrote a song recently about President Obama. I want to play that and then ask you a question on the other side. Watch.

MANN: OK.

(BEGIN VIDEO CLIP)

(SINGING)

(END VIDEO CLIP)

SHUSTER: Jonathan, why political themes and why—explain why you‘re writing a song every day.

MANN: Well, writing a song every day is just a way for me to stay creative. You know, I‘m kind of like a lot of people. I‘m a little unemployed right now. So writing a song a day keeps me busy and, you know, and happy, I guess.

SHUSTER: Does politics inspire you?

MANN: Yes, I mean, definitely. We live in such—like, such interesting times right now. There‘s a lot to write about. So it‘s all there for taking, I guess.

SHUSTER: Well, I agree with you a hundred percent on that. There‘s a lot to write about. There‘s a lot to report about. We asked you, when we noticed that you did this and ran your clip the other night, we asked you to write a song for us here at 1600. So drum roll, please, everybody. Here‘s Jonathan‘s song in full for 1600. Watch.

(BEGIN VIDEO CLIP)

(SINGING)

(END VIDEO CLIP)

SHUSTER: Jonathan, when I saw that, I was blown away. That‘s like one of the most flattering things I‘ve ever seen. It‘s even cooler than getting an Emmy award. How long did it take you to write that?

MANN: That was about four hours.

SHUSTER: Four hours.

MANN: Yes.

SHUSTER: Now, I understand you‘ve got an MSA in writing. You‘re 26 years old. You went to Cal. I mean, is this something you just do on the side? Do you have to do research to try to come up with this stuff? How do you put it together with all the graphics and everything?

MANN: I mean, you know, the songs come from anywhere. They come—a lot of them just come from me. I also take requests on my website a lot of the time. You know, people like yourself will just say, hey, write a song about this. Write a song about that. And then I‘ll do it.

SHUSTER: Do you have a favorite subject that you like to write songs about?

MANN: Not any one subject in particular. I tend to write about just kind of anything. You know, politics of late seems to be the thing that I‘m writing a lot about. But, you know, video games, you name it. I write about pretty much anything.

SHUSTER: Well, Jonathan, I have to say, this is one of the most creative things I have ever seen. I know that you‘ve got a business going where you can—people I guess can get their ring tones custom made by you for an amount of money. And you‘re also taking requests. The website is RockCookieBottom.com.

Jonathan, again, thanks from the entire staff for your tribute to us. You have just written the new anthem for 1600. We‘re going to use it a lot. Good luck to you. I think your career is just taking off and we‘re so proud to know you. Thanks again.

MANN: Thanks so much. I really appreciate it a lot.

SHUSTER: You‘re very, very welcome. And that is the view from 1600 PENNSYLVANIA AVENUE tonight. I‘m David Shuster. Remember, get the latest political news and a sneak peek of what‘s coming up on the show sent straight to your inbox with the 1600 Daily Briefing. Sign up at Shuster.MSNBC.com or text Penn to 622639 to have alerts sent to your phone.

If you Twitter, I‘ll be online right after the show at

Twitter.com/Shuster1600. I‘m David Shuster. “HARDBALL” with Chris Matthews starts next.

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

END

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