updated 12/16/2011 10:39:02 AM ET 2011-12-16T15:39:02

Guests: Richard Wolffe, E.J. Dionne, R.T. Rybak, Krystal Ball, Jon Soltz, Nancy Pelosi

ED SCHULTZ, MSNBC HOST: Good evening, Americans. And welcome to THE
ED SHOW tonight.

The Republican presidential candidates just concluded their final
debate of 2011 in Sioux City, Iowa. It may be the last chance for many of
them to make a splash before the Iowa caucuses coming up on January 3rd.

Frontrunner Newt Gingrich was under attack for most of the night, but
I thought he held his own. It was very smooth.

All of the candidates went after the number one opponent, President
Obama.

For reaction for the Democrats tonight, let`s bring in R.T. Rybak, who
is the mayor of Minneapolis and the vice chair of the Democratic National
Committee.

Mr. Rybak, good to have you with us tonight.

I want to start with this sound bite right here because Mitt Romney of
course making the case again that the country is in terrible condition and
says that actually America is in decline. Here it is.

(BEGIN VIDEO CLIP)

MITT ROMNEY (R), PRESIDENTIAL CANDIDATE: This economy has every
potential to continue to lead the world. Our president thinks America is
in decline. It is if he is president, it`s not if I`m president. This is
going to be an American century.

(END VIDEO CLIP)

SCHULTZ: R.T., what`s your response to that right off the top
tonight?

MAYOR R.T. RYBAK (D), MINNEAPOLIS, MN: Fourteen debates, 28 hours of
our life will never get back, and these guys still can`t give an answer to
the big question, what would they do to fix the economy?

Mitt Romney would have sat on the sidelines when the auto industry was
going to collapse. President Obama stepped up, 1.4 million Americans in
the auto industry are working -- 1.4 million people, half the population of
Iowa are working today. Mitt Romney would have had them all out of work.

I haven`t heard a single idea, nor has America -- except going back to
the old bad days of George Bush.

SCHULTZ: How do you think President Obama would have fared against
these guys tonight if he had been on the stage?

RYBAK: President Obama would have fared just fine. But President
Obama is working. He is back in Washington trying to get a middle-class
tax cut that all of these guys are against. Now, who in the world would
think it`s good for the economy to keep the middle class from getting a tax
cut solely in their mind because the very top people should be getting a
tax break?

These guys have been debating all this time, but they certainly don`t
have a clue about what to do. The president will do fine in the debate,
but, you know, we are out here doing what we did in Iowa four years ago.
We`re going door-to-door, building a grassroots. We`ve got more Obama
offices opened here than all the Republican candidates combined.

So, let them do their freak show out here. But the fact of the matter
is, we`re on the ground and we`re going to win Main Street.

SCHULTZ: Tonight, Governor Romney was asked directly about Newt
Gingrich. And in his answer, he refused to take a shot at the former
speaker. He directed all of his criticism towards President Obama, which I
found very interesting.

Here he is not being the front runner, and yet he is not attacking
Newt Gingrich. He went after the president for the way he handled the
General Motors situation. Here it is.

(BEGIN VIDEO CLIP)

ROMNEY: In the real world, some things don`t make it, and I believe I
have learned from my successes and my failures. The president I look and
say, Mr. President, how did you do when you were running General Motors as
a president, took it over? Gee, you closed down factories, you closed down
dealerships. And he`ll say, well, I did that to some of the business.

Same thing with us, Mr. President. We did our very best to make those
businesses to succeed. I`m pleased that they did and I`ve learned the
lessons of how the economy works.

This president doesn`t know how the economy works. I believe to
create jobs, you have to have created jobs.

(END VIDEO CLIP)

SCHULTZ: What is your response, Mr. Rybak, to the fact that Mister --
President Obama doesn`t know how to create jobs according to Mitt Romney?

RYBAK: Ed, you got to laugh. This corporate takeover specialist is
talking to President Obama about closing down factories? That`s what Mitt
did for a living. He made a lot of money at doing that.

President Obama, he stepped up. He saved the auto industry. Mitt
Romney would have closed it. It`s pure and simple.

SCHULTZ: Of those candidates you saw tonight, who came away in the
best position to win Iowa?

RYBAK: You know, I was asking people as they were coming out of here.
And I was kind of surprise, a lot of them were saying that Newt Gingrich
came out best. There is a lot of sentiment for Ron Paul here. But, you
know, I do not think anyone can really tell you where this thing is going
to go. It`s super fluid. And, you know, that`s kind of a horse race.

But if something else, it`s the fact that these people have been
campaigning for a long time here. Romney has been on the ground for five
years and spent millions of bucks, and none of them are catching on,
because the fact of the matter of is, they`ve got nothing new to offer
except the fact that they are not Barack Obama.

Barack Obama is probably pleased about that, and the American people
should say that if all you can say is you`re not Barack Obama and you spent
four years trying to stop Barack Obama, maybe if he just got out of the way
and we got a Congress who could work with Barack Obama, we can do even
better in this country. And that`s what`s going to happen.

SCHULTZ: R.T. Rybak, vice chair of the Democratic National Committee,
good to have you with us. Thanks so much.

RYBAK: Good to see you, Ed.

SCHULTZ: For more, let`s turn -- you bet. For more, let`s turn to
MSNBC political analyst, Richard Wolffe, E.J. Dionne with us tonight,
senior fellow at the Brookings Institution, and Democratic strategist
Krystal Ball.

Obviously, we have a lot to talk about. Great to have all of you
here.

KRYSTAL BALL, DEMOCRATIC STRATEGIST: Thanks, Ed.

SCHULTZ: Newt Gingrich obviously was the target tonight because he is
the front runner. I thought probably the best person who dinged at Newt
tonight was Michele Bachmann. Probably the most aggressive on Newt
Gingrich was Michele Bachman, in this exchange about his alleged career as
a lobbyist.

Here it is.

(BEGIN VIDEO CLIP)

REP. MICHELE BACHMANN (R-MN), PRESIDENTIAL CANDIDATE: We know that he
cashed paychecks from Freddie Mac. That`s the best evidence that you can
have, over $1.6 million. And, frankly, I am shocked listening to the
former speaker of the House because he is defending the continuing practice
of Freddie Mac and Fannie Mae.

There is a big difference between a credit union and Freddie Mac and
Fannie Mae. They were the epicenter of the financial meltdown. I was
trying to see these entities put into bankruptcy because, frankly, they
need to go away.

When the speaker had his hand out and he was taking $1.6 million to
influence senior Republicans to keep the scam going out and in Washington,
D.C. That`s absolutely wrong.

GINGRICH: That`s just not true. What she just said is factually not
true. I never lobbied under any circumstance. I think some of these
people ought to have facts before they make wild allegations.

BACHMANN: Well, after the debate that we have last week, PolitiFact
came out and said that everything that I said was true. And evidence is
that Speaker Gingrich took $1.6 million. You don`t have to be within the
technical definition of being a lobbyist to still be influenced peddling
with senior Republicans in Washington, D.C. to get them to do your bidding.

GINGRICH: I want to state unequivocally for any person watching
tonight, I have never once changed my positions because of any kind of
payment, because I -- the truth is, I was a national figure who was doing
just fine.

(END VIDEO CLIP)

SCHULTZ: Richard Wolffe, who wins in that exchange?

RICHARD WOLFFE, MSNBC POLITICAL ANALYST: Well, I don`t know why Newt
has such a problem talking about lobbying, you know? He`s -- Republicans
don`t care about lobbying. They just -- Dan Coats in Indiana being a
lobbyist.

He`s problem was Freddie Mac. And his weakest points was actually
something we didn`t play here, was when he tried to suggest that Freddie
Mac was just like Habitat for Humanity. I mean, it`s not, OK?

They hate Freddie Mac, they hate its role in the mortgage meltdown.
They hate the idea of a government-sponsored enterprise. He comes back to
this idea that he made $60,000 a speech, so he didn`t need the money. And
his positions are all sacrosanct.

It doesn`t matter. They don`t care about the lobbying. They care
about his position with regards to the mortgage market. That was his
weakest position. But the rest of the debate, he sailed through it.

SCHULTZ: E.J. Dionne, there is a lot of talk about the Republicans
saying that they can change the way Washington works, yet their front
runner is about as Washington as you can get. Your thoughts on that
exchange with Michele Bachmann.

E.J. DIONNE, BROOKINGS INSTITUTION: First of all, I think all the
people who have been attacked by Newt Gingrich over the years in pretty
harsh terms will be amused to hear him say people ought to have facts
before they make wild allegations.

I think that that exchange, I agree with Richard, it was the one
moment in the debate where I thought Gingrich was on the defensive. When
you have to begin a statement with words like, "I never once did X," you
are not in a good place. And she stayed aggressive.

And I think endorsing a government-sponsored enterprises, I don`t have
anything against those in principle, but I think a lot of conservatives do.

Having said that, I think he was very strong at the beginning and the
end. He even made fun of himself when he talked about Romney`s accusation
that he has zany ideas. He said, I don`t want to look zany tonight.

So, I don`t think anything other than that moment dislodged him from
this front runner status.

BALL: Can I add one more element about this Michele Bachman exchange?
Because polls are showing that Newt Gingrich has a problem with women. In
polls, women rate him about 18 points more negatively than favorably. So,
he has an issue of killing the female voters.

And then he has -- it wasn`t just the one instance that you played.
Time and time again in past debates and in this debate, he said to Michele
Bachman, you are wrong, you don`t have your facts straight. And she
actually came back at him and said, I am serious candidate for president,
and made him look like he was patronizing the only woman on the field.

So, I think that could be another issue for him in appealing to women.

SCHULTZ: Krystal, do you think that he solidified his conservative
credentials tonight? He talked about his 30-year position as a
conservative. I thought he was very smooth and very convincing on that.
What do you think?

BALL: I think he was for most of the debate, but I agree with E.J.
That moment when he was defending the government-sponsored enterprises.

SCHULTZ: Yes.

BALL: Most people don`t really know what those are, but I think to
conservative year, it sounds a little socialism to me. So I think that`s a
moment that Mitt Romney and others in the -- that are opposing him will
probably seize on.

SCHULTZ: Richard, why didn`t Mitt Romney go after Newt Gingrich
tonight?

WOLFFE: Well, Mitt Romney has to try and show some backbone, right?
So, you know, the idea here is that he has to knock Newt down and show that
he has some gumption to him.

I don`t think that -- by the way, the government-sponsored enterprise,
Republicans don`t have a problem with government-sponsored enterprises when
you are a defense contractor, right? If you are a government supported
like Northrop Grumman or you know, Lockheed Martin, that`s fine.

But, you know, for Newt -- Newt was so much more eloquent and fluid
about a whole range of subjects. I think Mitt Romney`s position was
actually that he pulled his punches. He was still trying to pretend that
he was the great private sector champion.

And he pulled out that G.M. comparison, which did not make much sense.

SCHULTZ: Yes.

And, quickly, E.J., did anybody rectify themselves tonight, maybe the
governor of Texas? What do you think?

DIONNE: He may be getting somewhere on this debate. He didn`t make
any big mistakes. He actually looked fairly calm, almost resigned in his
position.

SCHULTZ: He even said he was getting better at it. I thought that
was kind (INAUDIBLE). He thinks he`s getting better at the whole doggone
thing.

Richard Wolffe, E.J. Dionne, and Krystal Ball -- yes, go ahead.

DIONNE: Oh, I just want to say, Romney looked happier tonight. I
don`t think he scored any big points, but he looked I think better than he
has in the last couple of debates.

BALL: And you know what, Ed? He`s got the money in the bank to make
those negative attacks without him having to do it directly. So, I think
that`s part of the strategy, too.

(CROSSTALK)

SCHULTZ: Richard Wolffe, E.J. Dionne, and Krystal Ball -- great to
have all of you with us tonight. I appreciate you coming in for analysis.

And later, my exclusive interview with House Democratic Leader Nancy
Pelosi. This is THE ED SHOW on MSNBC. Stay tuned. We`ll be right back.

(COMMERCIAL BREAK)

SCHULTZ: More analysis of the Republican debate with our panel coming
up. And, later, House Democratic Leader Nancy Pelosi on income inequality,
Republican obstruction in Congress and her plans to take back the House in
2012. Stay tuned.

(COMMERCIAL BREAK)

SCHULTZ: Welcome back to THE ED SHOW.

In the debate tonight in Iowa, the Republican candidates went after
President Obama on foreign policy. Again and again, they said he is weak.

(BEGIN VIDEO CLIPS)

MODERATOR: President Obama`s actions invited war.

ROMNEY: Absolutely.

The right course under President Obama`s plans is to shrink our
military, thinking somehow if we appease or accommodate the tyrants of the
world, that the world would be safer. You`re wrong.

GINGRICH: You think if we had 11 missiles fired into the United
States, this president would just say, "Gee, maybe we could communicate and
they would like us."

GOV. RICK PERRY (R-TX), PRESIDENTIAL CANDIDATE: This administration
has absolutely bungled. It is the most muddled foreign policy that I can
even remember in my lifetime.

(END VIDEO CLIPS)

SCHULTZ: I`m rejoined tonight by MSNBC political analyst, Richard
Wolffe, E.J. Dionne of "Washington Post," and Democratic strategist Krystal
Ball. Also joining us tonight, Jon Soltz, chairman of VoteVets.org, and
Iraq war veteran.

Jon, let`s start with you. There`s a lot of saber-rattling going on
tonight out there. I -- when I was listening to Rick Santorum, I thought
we were going to get hit by the Iranians in about 10 minutes.

The depiction that President Obama is weak, fair or unfair?

JON SOLTZ, VOTEVETS.ORG: It`s completely false. You`re talking about
a president who ended the war this week, finally -- a war that essentially
supercharged al Qaeda recruiting, a war that strengthened Iran, because as
we invaded Iraq, instead of a democracy, now, there`s tremendous amount of
Iranian influence there.

So, what President Obama, he has done things the Republicans never
could do. He killed Osama bin Laden. He has a very effective counter-
terror campaign across the world globally that`s killing terrorists
everywhere and he`s ended a war that`s supercharged recruiting.

I mean, they are the reason that we`re less safe. And the president
is the reason that the world`s number one bad guy is dead.

SCHULTZ: Richard, the president was actually criticized tonight for
not bombing Iran over a drone.

WOLFFE: A drone. Right. We`re in a situation where the Republican
field the most sane person is Ron Paul who says it`s really not worth
invading Iran to get a drone back. That`s how ridiculous it is.

And Rick Perry cannot remember a more muddled foreign policy? That`s
a pretty low bar in terms of his memory.

SCHULTZ: Axelrod tweeted, "Wonder if bin Laden and demolished al
Qaeda leadership agree with Mitt that President Obama is timid on national
security."

Shouldn`t this be the answer that every time President Obama is weak?
E.J. Dionne, is this proper? What do you think?

DIONNE: I think you`re going to hear the name of Osama bin Laden come
up a lot in this campaign. I think there`s a great irony is that if you
look at the polls, Barack Obama`s strongest numbers are on his foreign
policies.

Americans wanted the war in Iraq to end several years ago. They are
not. They`re in favor of a withdrawal from Afghanistan that he has
started. They want to go faster.

And I think the Republicans really do sound like they are from about
five, six, seven years ago. And the rhetoric they`re using now may still
appeal in a Republican primary, but it`s just not where the country is at
all right now.

SCHULTZ: Krystal, why is Ron Paul surging in the polls in Iowa? He
got quite a bit of response tonight when he talked about, you know, not
having international intervention and not being so anxious to get into all
these wars. This is in the middle of the country, and Ron Paul is being
cheered tremendously by Iowans tonight.

What did you make of that? Is that why he`s surging?

BALL: Well, I actually think the reason he`s surging is because he`s
someone, whether you agree with him or not, he does not pander. And that`s
something I respect about him. He tells you exactly what he thinks. He`s
sort of fundamentally incapable of pandering.

He`s had a phenomenal on the ground operation, and I think he`s been
smart in his campaign. He`s also been a little more focused this time
around than he was in 2008 on his economic policies, which are very popular
among the conservative base.

That being said, I think there is a lid on his support, because his
extreme isolationist views are out of line with the Republican base, as
appealing as I find some of them to be.

SCHULTZ: Let`s go back to Newt Gingrich for a moment. I thought he
really asked for the order tonight, saying that he`s a staunch
conservative, giving a 30-year record of it. But he compared himself to
Ronald Reagan running in 1979. Here it is.

(BEGIN VIDEO CLIP)

GINGRICH: I`ve been around long enough that I remember at this exact
time in 1979, when Ronald Reagan was running 30 points behind Bill --
behind Jimmy Carter, and if people had said, gosh, electability is the
number one issue, they wouldn`t have nominated him.

(END VIDEO CLIP)

SCHULTZ: Richard Wolffe, how does that play? What do you think?

WOLFFE: You know, the problem is, he can remember 30 years ago as if
it was yesterday, although he did confuse being someone in Washington for
30 years, Bill Clinton and Jimmy Carter.

You know, yes, he can say I`ve always been a conservative. He`s not
trying to fool people that he`s a moderate trying to be conservative.
That`s the implicit contrast with Mitt Romney, but he`s been there 340
years, this is his fourth decade in Washington.

Is he from another era? That`s the problem that American voters are
going to face? Are they moving forward or they`re going back?

SCHULTZ: E.J. is that one skeleton that Newt Gingrich has gotten rid
of, that he`s maybe convinced Iowa voters that he is a conservative?

DIONNE: You know, I just think it`s very hard to convince anyone that
Newt Gingrich is not a conservative. And Richard is right that 1980 was a
long time ago.

But a lot of -- first of all, the Republican primary and caucus
electorate is really old compared to the rest of the country, and secondly
every conservative remembers that Democrats better who are saying that
Ronald Reagan was the easiest guy to beat, they love to bring that up with
Democrats.

And so, I think that line resonated with the audience that he was
talking to. Not necessarily with other audiences, but with the audience he
needed to care about.

SCHULTZ: John Soltz, Richard Wolffe, E.J. Dionne, Krystal Ball, great
to have all of you with us tonight. I appreciate your time and your take.

Coming up, my exclusive interview with House Democratic Leader Nancy
Pelosi. Her thoughts on the Democrats` chances in 2012, and if she thinks
her former House colleague Newt Gingrich has a shot at the presidency.

Stay tuned. You won`t want to miss it.

(COMMERCIAL BREAK)

SCHULTZ: The payroll tax holiday is set to expire for 160 million
working Americans. More than 2 million of the nation`s unemployed are on
the verge of losing their benefits. The government could shut down if a
deal is not reached. These are the consequences, I think, of a Republican
obstruction in Congress.

Today, House Democratic Leader Nancy Pelosi didn`t tiptoe around the
real reason this Republican-dominated Congress can`t get anything done for
the American middle class.

(BEGIN VIDEO CLIP)

REP. NANCY PELOSI (D-CA), HOUSE DEMOCRATIC LEADER: We`re all haunted
by Senator McConnell, the minority leader in the Senate, saying the single
most important thing we want to achieve is for President Obama to be a one-
term president. The single most important thing we want to achieve is for
President Obama to -- not the single most important thing we want to do is
to create jobs for the American people, to grow our economy, to educate our
children, to keep our country safe. The most important thing is to make
the president a one-term president.

(END VIDEO CLIP)

SCHULTZ: And I am joined tonight by House Democratic Leader Nancy
Pelosi.

Leader, thank you for being here tonight. I appreciate it.

PELOSI: Pleasure. Welcome to Washington, Ed.

SCHULTZ: Well, I have to ask you, have you ever seen the divide in
this government as great as it is right now? The atmosphere.

PELOSI: Well, it is a difficult time. No question about that. It
was terrible when the Gingrich Republican majority in Congress set out to
impeach President Clinton. That was not a very good time, either.

But what`s interesting now is just to see how brazen the Republicans
are when we need to have a tax, payroll tax cut for -- that will affect, as
you said, 160 million Americans and they are saying not one red cent from
300,000 Americans who make over $1 million a year.

SCHULTZ: How close are you --

PELOSI: It`s stunning.

SCHULTZ: What kind of progress was made today, if any? How close are
you to a deal on the payroll tax holiday, the unemployment, and the
potential government shutdown?

PELOSI: Well, we`re moving toward agreement. I hope that it will be
possible. It always gets harder as you get toward the end. But our
appropriators have worked in a bipartisan way. We think the bill was much
improved because the Republicans wanted to avoid having to go to the
payroll tax debate. But now they will have to. So, I`m optimistic --

SCHULTZ: Why will they have to?

PELOSI: -- there will not be a government shutdown.

SCHULTZ: There will not be a government shutdown?

PELOSI: There will not be.

SCHULTZ: You`re optimistic of that?

PELOSI: I`m optimistic of that.

SCHULTZ: OK. I hear it on radio all the time, I get a lot of people,
people in the Democratic movement, progressive movement, are afraid that
the Democrats are going to cave in. What are you willing to give up to get
this deal, if anything?

PELOSI: Well, we have to have -- we have to go forward to get the
payroll tax cut. And the point is that I think the president and the
Democratic members of Congress have made the payroll tax cut too hot for
the Republicans to handle. Remember, in the beginning, they didn`t want to
-- they were not even going to hear of doing such a thing. And then they
passed a bill which made it practically impossible to enact.

But now, they`ll have to come closer to that.

But we still have to continue to make the fight, because it`s not just
about the payroll tax cut. That`s important. It`s about tax fairness.
And even if we don`t have the surcharge on those making over $1 million as
a pay-for here, we still have to address the issue of tax fairness at some
point.

SCHULTZ: Well, tax fairness, does that mean there will be a revenue
component in this deal, that you will get the wealthiest Americans to serve
up some revenue?

PELOSI: I don`t think so. But I don`t think that that issue is off
the table as we go forward. But in any arrangement now to keep government
open, you saw that the announcement was made that they couldn`t get 60
votes in the Senate, the obstructionists of the Republicans there.

SCHULTZ: What about pay freezes for federal employees? What about
cuts of some 200,000 employees on the federal payroll?

PELOSI: Well, it was interesting that they would say in order to get
a tax cut, payroll tax cut, to 160 million Americans, which is very
important to those families, $1,500 in the pockets of 160 million working
Americans, that injects demand into the economy to create jobs. It`s not
only important to the families. It has macroeconomic impact. As do the
extension of the unemployment insurance.

But again, don`t touch one hair on the head of the wealthiest people
in our country making 300,000 wealthiest families. So again, this -- it`s
an issue that we will have with us because we`re on two different paths
about fairness and opportunity in our country.

SCHULTZ: What is fairness? What are you driving at here?

PELOSI: Well, what I call fairness is Democrats are committed to
reigniting the American Dream, to build ladders of opportunity so that all
Americans will work hard, play by the rules, take responsibility, can reach
success.

We have work to do. And we have to make sure that as we build that,
we build it on a strong foundation. And that fairness for the middle class
cannot come unless we have a change in reform and how campaigns are
financed because the role of big money, special interest money in campaigns
just snuffs out the voice of millions of people --

SCHULTZ: And I want to talk more about campaign finance reform and
what the Democrats want to do. But are you convinced that this will not be
viewed by Democrats and liberals in this country as a cave in to the
Republicans? That at the end of the day of this deal, it will be
acceptable to the Democrats?

PELOSI: Well, I certainly hope it will be because it is -- we have to
have the payroll tax -- we said we were not going home for the holidays
unless we had it. Now, we`ll have to have some form of it and continue,
and continue the fight.

But this issue of -- you have to give the Republicans credit. They
really stick with the guy what brung them to the dance.

SCHULTZ: Well, they protect the wealthy.

PELOSI: People making over -- they protect the wealthy. And it`s
hard to understand because they have said, well, these taxes at the high
end, they`re going to create jobs. They didn`t. We had all of this during
the Bush years.

And think of this, Ed. In the second year of the Obama
administration, more jobs were created in the private sector than in the
eight years of the Bush administration combined.

SCHULTZ: The Republicans eventually want to get the Bush tax cuts
permanent.

PELOSI: Yes.

SCHULTZ: Is there any way you would ever agree to that?

PELOSI: No.

SCHULTZ: So they will expire and that won`t be a part of this deal?

PELOSI: No. The fact is I was disappointed that they were extended
for the --

SCHULTZ: Last year.

PELOSI: -- period that they were. But the fact is, is that this is
the end of that. Well, of course, we have to elect President Barack Obama
president of the United States, and we have to elect a Democratic Congress
that I feel confident we can.

But even just electing the president, the president has said this is a
centerpiece of his campaign. The tax cuts will not be extended. They
don`t create jobs. They increase the deficit. It`s totally unfair.

And again, necessitated in order to be fiscally sound, cuts in
investment in the competitiveness of our country and the education of our
children.

SCHULTZ: But if there`s not going to be a revenue component on the
extension of the payroll tax holiday and the unemployment benefits are
going to be extended and you`re confident that they are and there won`t be
a government shutdown, where`s the money going to come from?

PELOSI: I didn`t say there wasn`t going to be a revenue component. I
said there wasn`t going to be a surcharge for the people making over
$300,000 --

SCHULTZ: So where would that revenue component come from?

PELOSI: We`ll see now, won`t we? That`s what`s going on in the
Senate right now, between Senator Reid and Senator McConnell -- Leader Reid
and Leader McConnell to see where they can get 60 votes, because as you
know, a majority doesn`t really count unless you have 60 votes in the
Senate.

SCHULTZ: Do you see any scenario being played out where middle-class
Americans might have to pay a little bit more?

PELOSI: Well, I certainly hope not. But I also think that as we
approach -- what we had hoped the super committee could do was to address
the entrepreneurial spirit of America, create jobs, invest in small
businesses, education is central to innovation, and all of that. And that
everybody would take some responsibility for reducing the deficit.

SCHULTZ: Yes.

Leader Pelosi, we talk about this chart a lot on THE ED SHOW -- the
income gap. Over the last 30 years in this country, we have seen the blue
line is wage earners of America, the middle class. The red line, of
course, is where the top 2 percent has gone over the last 30 years. Census
shows one out of every two Americans are now poor or in low incomes.

PELOSI: That`s stunning.

SCHULTZ: Seventy-seven percent of Americans say that the top 1
percent and corporations have too much power. What do you tell these
Americans? I mean, what has to happen to turn that around? If the
Democrats continue to extend tax cuts and seem to cave in with what the
Republicans want all the time.

How are you going to turn this around?

PELOSI: I don`t subscribe to that characterization of what the
Democrats -- we are here fighting the fight. That chart that you had has a
big gap. It`s immoral. And it has gotten greater and greater. And it`s
happened at the same time as productivity has increased in our country.

So you think wages could at least follow productivity to a certain
extent. But they haven`t.

And the statistics that came out today, that the number of people in
poverty or low-income, near poverty, is a stunning one. But that`s what --
that`s the decision that elections are about, the two different paths that
we`re on.

And that gap undermines our democracy, undermines the middle class,
and undermines our democracy. This is a bigger issue than just one`s view
of economics. It`s about how you sustain a middle class, which is the
backbone of our democracy.

PELOSI: OK. House Leader Nancy Pelosi, stay with us. We`ll have
more with Democratic leader Nancy Pelosi after this. You`re watching THE ED
SHOW on MSNBC.

(COMMERCIAL BREAK)

SCHULTZ: Welcome back to THE ED SHOW.

Breaking news at this moment: "The Associated Press" reports
congressional negotiators are preparing a two-month deal on payroll tax
cuts, jobless benefits.

We are back with House Democratic Leader Nancy Pelosi on THE ED SHOW.

How does that news hit you? What do you make of it?

PELOSI: Well, it is -- hopefully, we will still be able to get the
full extension of the payroll tax cut for another year, unemployment
insurance, and SGR. This is a possibility if that`s not possible. But I
don`t know that the other -- the longer negotiation is over.

What`s important to note about this is it keeps the fight going on.
That no people will lose -- I would think this is OK as long as no
beneficiary of unemployment insurance loses their benefits in that time
frame because depending on how you write the bill, that`s important. The -
- but it keeps in the public eye this distinction between do you support a
payroll tax cut for 160 million Americans and are you willing to not do
anything about 300,000 families which make, not have, which make $1 million
a year.

It`s really important for people to understand how protective of the
upper income people they are.

SCHULTZ: So, what kind of position does this put you in, Leader
Pelosi? I mean, you have now got a two-month window to go back and
negotiate and get really what you want. So this is just an extension here.
What do you make of that?

PELOSI: Well, what I make of it is what it means to that kitchen
table that many Americans are sitting around --

SCHULTZ: Does this put you in good position?

PELOSI: I think so. I think the longer we`re talking about a middle
class tax cut, the better it is for us to make a change for the public to
understand who wants the tax cut and who wants to protect the 300,000
wealthiest people in our country.

SCHULTZ: What does this mean? Does this mean that the Democrats are
going to have two more months to go back and sell to the American people
that the wealthiest Americans have to pay more? Would that be your
mission?

PELOSI: Well, we want to -- as the president said in his Kansas
speech, which I thought was a fabulous speech, and I particularly liked the
part where he talked about this -- the big role that money plays in
elections and that that has to stop. But in that speech, he talked about
all Americans.

So, I don`t like this us against them kind of attitude. But the fact
is that if you`re saying you can`t have a middle-income tax cut, the
Republicans have said the high-end tax cuts, tax cuts at the high end,
should be made permanent and they don`t believe in extending tax cuts, the
payroll tax cut.

SCHULTZ: Speaking of the president`s speech in Kansas, he said this
that really caught my attention. "This is a make or break moment for the
middle class, and all those who are fighting to get into the middle class.
At stake is whether we will be a country where working people can earn
enough to raise a family, build modest savings, own a home, and secure
their retirement."

He had more of a fighting spirit. And I know some Democrats have told
me that in negotiations, the liberals want one thing, the Democrats and the
conservatives want -- the Republicans want something -- and President Obama
always seems to go to the middle to cut to the deal right away. And that`s
frustrated a lot of people.

Do you see that --

PELOSI: I don`t see that. No. I will say that first of all we`re
very fortunate to have such a brilliant, dedicated, values-based president
of the United States. And what I have seen sitting at that table I think
all Americans would be very proud of.

SCHULTZ: OK.

PELOSI: Fighting in a values-based way for middle-income families
every step of the way.

SCHULTZ: Do you view that speech as somewhat of a turning point?

PELOSI: I think it was a very important speech because I love what
Teddy Roosevelt did, the trust buster and the age of the robber barons,
come forth, talking about the middle class. And in the speech that Teddy
Roosevelt made in 1910, he talked about the corruptive role of money in
politics, corporate money in politics.

So, in the spirit of Teddy Roosevelt and hearkening back to that
speech, I thought it was great -- a great speech. And an important message
for the American people to make, and an important distinction to make about
the two different paths to take our country down.

But he said it in a way that was about all Americans, unifying all
Americans.

SCHULTZ: I`ve got to ask you about newt Gingrich. Do you find him
trustworthy?

PELOSI: I`m not going to say one word about newt Gingrich. I think
that his campaign will speak for itself. It`s up to the Republicans to
nominate who they nominate, and it`s just interesting to watch.

SCHULTZ: Do you think that Newt Gingrich would be a good president?

PELOSI: No.

SCHULTZ: You don`t?

PELOSI: Absolutely not. No, no.

SCHULTZ: Is a big play to the middle class going to be one of the
major things for the Democrats to take back the House? What is the game
plan?

PELOSI: Well, this is not about Democrats or Republicans. This is
about our country. As the president said, this is really a very important
moment. And it could be -- it`s pivotal. But it is also perishable. We
have to take advantage of the time that we have now. And nothing makes the
distinction clearer than not one red cent from the 300,000 wealthiest
families in America and we just don`t really feel like doing a tax cut for
the middle class, a payroll tax cut.

What I`ve said is they don`t want to do it. And then they did it but
they did it in a way that a young woman would say to someone who asked her
to marry you -- oh, yes, I`ll agree to marry you, I can just do it on the
30th of February. That day is never coming. And the day is never coming
that the president will be signing a bill that is unfair to the middle
class.

SCHULTZ: Can you take the House back? Can the --

PELOSI: Yes, we can. Under the leadership of Steve Israel, our
chairman, we are in a drive for 25. We feel very confident about it.
We`ve outraised the Republicans, if you can imagine that, our small donors
have saved the day for us. We want to increase their voice in the process.

And we`ve out-recruited. We have great candidates who care about our
country.

And I will say this because it`s part of what you`re going to in the
rest of your program. It`s not just about empowering people in terms of
offsetting big money by small contributions. It`s about removing obstacles
to their participation at the polls, which the Republicans are throwing up
every step of the way, so that the power of the few outweighs the power of
the many. That`s not the American way.

SCHULTZ: Democratic Leader Nancy Pelosi, thanks for joining us.
Appreciate it.

PELOSI: My pleasure. Happy holidays.

SCHULTZ: You bet. And to you.

PELOSI: Thank you.

SCHULTZ: Coming up, MSNBC political analyst Eugene Robinson here and
former New York Governor Eliot Spitzer with analysis of my interview with
House Democratic Leader Nancy Pelosi. You`re watching the ED SHOW on
MSNBC.

(COMMERCIAL BREAK)

SCHULTZ: Welcome back to THE ED SHOW.

As we reported to you moments ago, there will be a two-month
extension. That`s what congressional negotiators are working on, for the
payroll tax holiday, and to prevent a government shutdown.

Joining me tonight for analysis of that interview is MSNBC political
analyst and "Washington Post" columnist Eugene Robinson. And also, former
Governor Eliot Spitzer of New York.

Great to have you with us tonight.

Eugene, where`s the money going to come from? I think that`s the big
question right now.

EUGENE ROBINSON, MSNBC POLITICAL ANALYST: We don`t know. The answer
is we don`t know. Administration officials have been very cagey and
indefinite in terms of their idea of where the money is going to come from.

Now, granted, we were talking in terms of a longer range extension of
unemployment insurance and the payroll tax holiday. Now, if we`re only
talking about two months, obviously, that`s less money that has to be
found. But my understanding of the Republican negotiating position is that
you`ve got to find the money somewhere.

So, where does that money come from?

SCHULTZ: Well, the Congress doesn`t want to hurt anybody, but they
can`t make up their mind on exactly how they`re going to pay for this.

ROBINSON: Exactly.

SCHULTZ: So they`re at a stalemate. So they are going to be home for
the holidays.

ROBINSON: Let`s go home for the holidays and we`ll talk about it
later.

SCHULTZ: Eliot Spitzer, looking at this situation right now, I keep
hearing from core Democrats that they don`t want to cave in at all.

How much of a tightrope is this for the Democrats?

ELIOT SPITZER (D), FORMER NY GOVERNOR: Well, look, it is a tightrope.
But let`s go back to basics for a minute. It`s good for the economy to
extend the payroll tax cut.

It is good politics if this issue continues to be the fulcrum of the
debate. Good for us as Democrats because we clearly win this debate at a
political level because as Leader Pelosi just highlighted, it is the middle
class versus the extraordinarily wealthy. We don`t like to frame politics
that way, but that`s what this is about.

But let me put an overlay on this. What concerns me, Ed, and, Gene,
is that if this is the entirety of what we`re talking about to get our
economy moving again, we`re not going to make the progress we need to make.
And so, I think while this is good short-term stuff we need a much broader
conversation to get our economy back to where it needs to go.

SCHULTZ: So the Democrats have not gotten what they`ve wanted so far,
Gene.

ROBINSON: Well, they haven`t gotten it, Ed. Now, what we`re hearing
from administration officials, and there was a briefing today with a couple
of senior officials, they say we`re going to continue this fight. We want
-- we want to make sure that nobody gets hurt right now and the economy
doesn`t get hurt right now. We want to make sure that unemployment
insurance is extended; the payroll tax holiday is extended.

We know that Republicans have dug in their heels on the kinds of
stimulative measures and the kinds of investment that need to take place
for this economy to get going. But we`re going to continue that fight.
And if necessary we`ll continue with it into next year.

SCHULTZ: Eliot, is this a win for the Democrats tonight?

SPITZER: Well, look, I don`t think we know yet. I think this is
really a stalemate. This is just a continuation of the sort of gridlock
the public is tired of.

I think the question is: can the president build on what I thought was
a spectacular speech a couple weeks ago out in Kansas, sort of embracing
the mantle of Teddy Roosevelt, and make that the framework of his argument
next year?

If he does so, he will win. We can take back the House. If he lapses
back into the sort of trading that he had sort of dominated the first two
years of his presidency, then I think the public will lose enthusiasm.

So, I think we don`t know yet if it`s a win. I still believe the
economy will dictate the outcome. And I don`t see enough stimulus here to
get us moving forward at a pace that makes me comfortable.

SCHULTZ: And in the midst of all of that, Leader Pelosi is convinced
that the Democrats can take the House back, and she also mentioned where
the money was coming from. They are counting on the lower end donors, the
butcher, the baker, the candlestick maker to pull them through this thing.

ROBINSON: Well, that`s what they`re counting on. You know, Eliot is
absolutely right, that continuing this discussion does seem to me to be
good politically for the Democrats.

It is not inconceivable that Republicans will get enough heat as we
roll into the election year, and as they hear from their constituents --
that they`ll start getting enough heat that maybe they`re willing to move a
bit.

Now, I`m not guaranteeing that. They`ve been so steadfast in drawing
their line. And they`ve been really unified. But we`ll have to see what
they hear from their constituents over the holidays.

SCHULTZ: What is the best play for the White House right now,
Governor?

SPITZER: I think the White House -- the White House wins out of this,
because it means that two months from now, the president, once again, will
be able to frame the debate as he, the president, standing up for the
middle class, extending a tax cut to the middle class, needing to drag the
Republican party to that, as Leader Pelosi said, while the Republican party
defends tax cuts and wants to make permanent tax cuts for the rich.

That`s why I`m surprised, kind of to pick up on what Gene said, that
the Republicans didn`t want to get rid of this issue for the entirety of
next year, push it all off until after the `12 elections, and between now
and then debate everything else under the sun, but not the middle-class tax
cut.

SCHULTZ: Well, we are told tonight that the extension of the Bush tax
cuts is off the table. She says this is the end. Well, I certainly hope
so. So that means that more money will be coming into the Treasury.

Gene Robinson, Eliot Spitzer, great to have both of you gentlemen with
us tonight.

That`s the ED SHOW. I`m Ed Schultz. You can listen to me on Sirius
Radio XM 127, that`s the channel, Monday through Friday, noon to 3 p.m.
And follow me on Twitter @edshow and @wegoted. "THE RACHEL MADDOW SHOW"
starts now.

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

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