updated 12/29/2011 11:50:00 AM ET 2011-12-29T16:50:00

Guests: E.J. Dionne, Chuck Schumer, John Garamendi, Keith Ellison, Bob Shrum, Ezra Klein, Dr. James Peterson

ED SCHULTZ, HOST: Good evening, Americans. And welcome to THE ED
SHOW tonight from New York.

John Boehner caves and accepts the Senate`s payroll tax cut extension.
It`s a win for the Democrats and a win for 160 million Americans.

This is THE ED SHOW -- let`s get to work.

(BEGIN VIDEOTAPE)

REP. JOHN BOEHNER (R-OH), SPEAKER OF THE HOUSE: If you can get this
fixed, why not? Why not dot the right thing for the American people? Even
though it`s not exactly what we want.

SCHULTZ (voice-over): Republicans have caved, and middle-class
Americans get the victory.

Tonight, Chuck Schumer of New York on John Boehner`s failed strategy,
Representatives Garamendi and Ellison on what`s next for the Democrats, and
E.J. Dionne of the "Washington Post" on the lasting damage this cave causes
for Republicans.

MITT ROMNEY (R), PRESIDENTIAL CANDIDATE: I don`t think it`s unusual.
I do think prior presidents would have done the same thing.

SCHULTZ: Mitt Romney gets busted taking another new position
regarding the president`s decision to kill Osama bin Laden. Democratic
strategist Bob Shrum is here with the latest.

SEN. JOHN MCCAIN (R), ARIZONA: I think that the president should play
much more of a lead role rather than going shopping for his dog.

SCHULTZ: John McCain, Eric Cantor, Sarah Palin, and FOX News are
howling about Obama`s dog. They`re all going in the zone.

And racial remarks come back to haunt the latest GOP front-runner.

UNIDENTIFIED FEMALE: But you did read them.

REP. RON PAUL (R-TX), PRESIDENTIAL CANDIDATE: Not all the time. On
occasion, yes.

SCHULTZ: Dr. James Peterson on the controversy Ron Paul wishes would
just go away.

(END VIDEOTAPE)

SCHULTZ: Good to have you with us tonight, folks. Thanks for
watching.

The Tea Party`s mission to destroy this presidency and the economy --
well, it`s failed for now. They`re still on the move.

Tonight, John Boehner buckled to the Senate`s two-month extension of
the middle-class tax cuts and unemployment insurance. Boehner has been
getting heat and pressure from all sides. He couldn`t win.

Today, President Obama stood his ground and turned up the heat on the
speaker and the Republicans.

(BEGIN VIDEO CLIP)

BARACK OBAMA, PRESIDENT OF THE UNITED STATES: Nearly every Democrat
in the senate voted for that compromise. Nearly every Republican in the
Senate voted for that compromise. Democrats and even some Republicans in
the House voted for that compromise.

I am ready to sign that compromise into law the second it lands on my
desk. So far, the only reason it hasn`t landed on my desk, the only
reason, is because a faction of House Republicans have refused to support
this compromise.

(END VIDEO CLIP)

SCHULTZ: Senate Minority Leader Mitch McConnell, also turned on the
speaker today. McConnell released this statement, although he was spinning
it pretty good. "Working Americans have suffered enough from the
president`s failed economic policies and shouldn`t face the uncertainty of
a New Year`s day tax hike." Nice take, Senator.

But late this afternoon, Speaker Boehner buckled to all the pressure.
He held a conference call with House Republicans to announce he wanted to
pass the Senate bill by unanimous consent.

Tonight, Boehner -- well, he ate some crow.

(BEGIN VIDEO CLIP)

BOEHNER: Senator Reid and I have reached an agreement on payroll tax
relief on behalf of the American people. Key parts of this agreement are
that on January 1st, no American worker will see an increase in their
taxes.

(END VIDEO CLIP)

SCHULTZ: That was the sound of John Boehner caving.

So what does this mean? Where does the Tea Party go from here?

I think in the next few months, we`re going to find out what political
revenge is all about. And I would imagine that somewhere tonight, John
Boehner`s having a stiff drink trying to figure out what his next move is
going to be, because I do get the sense these Tea Partiers are not going to
give up. Their mission was to go to Washington, defeat President Obama.

Tonight, they are the losers and the winners are the American people.
Those 160 million Americans who were sitting on the fence, waiting for some
conclusion out of Washington, hopefully, they will get it tomorrow morning.

Get your cell phones out. I want to know what you think tonight.
Tonight`s question, is John Boehner the most ineffective speaker in recent
memory?

Text "A" for yes, text "B" for no to 622639. Our blog is there with
you as well, Ed.MSNBC.com. We`ll have the results later on in the show.

Joining me tonight is New York Senator Charles Schumer on the
Democratic leadership team.

Senator, congratulations.

SEN. CHARLES SCHUMER (D), NEW YORK: Well, thank you.

It`s a victory for the middle class -- middle-class people over Tea
Party politics. That hasn`t happened enough this last year, but it
happened fittingly at the end of the year. And we hope it`s a metaphor for
2012.

SCHULTZ: Well, have the Republicans been exposed for the party that
puts politics over people? I mean, I think the way this whole thing has
played out, it has not been good for them.

SCHUMER: I think that`s right. What they`ve done this whole year is
play brinksmanship and paralysis. But they`ve been very clever about it.
And you know, people have sort of said a plague on both your houses.

What began with the debt ceiling and now continues with this issue,
people -- you know, the American people have pretty good sniffers and
they`re beginning to smell that this Tea Party is extreme and not really
interested in what`s good for Americans. It`s not simply that they might
have a different viewpoint, they want to cut government more than others,
but rather that they`re basically trying to paralyze government and get
nothing done.

And it is true that people are upset with government. But it`s not
because it`s doing too much, it`s because it`s doing too little to help
them.

SCHULTZ: There hasn`t been this much political light so, to speak,
between the Senate minority leader and the speaker over in the House. What
do you make of that? Is this really a dividing point?

SCHUMER: Well, let`s hope so. In the past, Speaker Boehner and Mitch
McConnell have worked in tandem, and it`s been pretty effective because the
House by its rules can pass something by a mere majority. So they send
stuff to us, and Mitch McConnell and the Republicans don`t let us pass
anything and they say the House has passed a bill, why hasn`t the Senate?

When the real question is: why haven`t the Democrats and Republicans
come together because you need both to pass things in both Houses.

But I think that McConnell, he`s a very smart politician, and he
realized that Boehner simply following the Tea Party, the hard right
people, was hurting the whole Republican Party and in fact risked his goal
of both defeating Obama and gaining a Senate majority. They`re a lot
further away from it today than they were two weeks ago.

SCHULTZ: Do you think there`s going to be any problems tomorrow with
unanimous consent?

SCHUMER: Well, you never know.

SCHULTZ: I mean there, might be some radical Tea Partiers.

SCHUMER: Yes, you could have had five of these guys call each other
up and say we`re flying to Washington and we`re going to block it on the
floor. But then because very smartly, Leader Reid said we`re not going to
support this until Speaker Boehner publicly does.

And the fact he now has to publicly support this on the floor of the
Senate means -- on the House, the floor of the House, the fact is if they
call the whole House back, every Democrat will vote for it, enough
Republicans will vote for, it hopefully Speaker Boehner won`t just totally
go back on his word. That it will pass.

So they`re stuck.

SCHULTZ: I want to get your reaction to something the speaker said
tonight. Here it is.

(BEGIN VIDEO CLIP)

BOEHNER: Politics will be politics. Our team believes it`s always
right to do the best thing. If you do the right things for the right
reasons, the right things will happen. Everybody`s already agreed that the
best policy is a one-year extension of these policies. All we`re fighting
for is what everybody`s already agreed to.

(END VIDEO CLIP)

SCHUMER: Yes, there`s a lot of fallacy in that statement. Two weeks
ago the majority of Republicans, a while ago, Eric Cantor, were for no
middle-class payroll tax cut because they thought that it would help the
economy too much. And now, of course, they said two months isn`t enough.

Well, if two weeks ago you`re saying I don`t want any of it and now
you`re saying I want a bigger one, it doesn`t pass the laugh test -- and
again, the American people sort of saw through that.

So what Speaker Boehner said isn`t right. His party, if they had been
resolute for this middle-class tax cut for the last six months, maybe
they`d have a leg to stand on. But they didn`t. They were against it,
against it, against it.

SCHULTZ: Have you -- could you point to any other time where the
Democrats have held together so strong on an issue?

SCHUMER: No.

SCHULTZ: There was no caving at all.

SCHUMER: But I will tell you, since September we`ve done a lot
better.

SCHULTZ: Yes.

SCHUMER: Why? Well, we have focused on the economy, jobs, and income
inequality. We came out united, finally, for the tax on incomes over a
million dollars. We came out for a jobs program. And we said, look, even
if it doesn`t pass, we`re going to put it on the floor of the Senate over
and over and over again.

And here`s what`s happened -- people now believe that Democrats are
much better at helping the economy than Republicans. This is the first
time in 30 years when you ask the American people, who`s better at tax
policy? They prefer Democrats to Republicans because we separated the
middle class from the millionaires.

SCHULTZ: Does that carry over to 2012 with political momentum?

SCHUMER: I believe if we stick with it, it will. We have to stick to
the three issues of jobs, the economy, and income inequality. The American
people are with us. Not with the Republicans on those issues.

f we stick with them and don`t expect, you know, every week we`re
going to have a major victory but it`s like Stalingrad, you fight it house
by house by house, we will be in good shape in 2012, even if the economy is
not rip-roaring back, which I hope it is.

SCHULTZ: Senator, great to have you with us tonight.

SCHUMER: Good to be here.

SCHULTZ: Thanks so much.

SCHUMER: It`s a good evening.

SCHULTZ: It is a good evening. It`s a good evening for the American
people.

And I have to say this. This was all so unnecessary, wasn`t it?

SCHUMER: Totally unnecessary. Look, I said at the beginning of the
week on your fellow MSNBC show that if we held tough they would have to
cave because the American people are on our side.

SCHULTZ: And the American people are with the Democrats on a lot of
issues, not just this one. So I hope --

SCHUMER: We have to stick with them. And the dissension in the
Republican Party, Ed, is for real. My guess is there are a whole lot of
mainstream conservatives who are not Tea Party people who are calling
Boehner and says, you can`t lead us over or you can`t follow the Tea Party
over the cliff because it`s going to hurt us.

SCHULTZ: You bet. Well, we`ll have more on the Tea Party.

Senator, thanks. Happy holidays. Good to have you with us.

Now, let`s turn to Congressman John Garamendi of California and also
Congressman Keith Ellison of Minnesota.

Gentlemen, good to have you with us tonight.

Keith, I want to ask you first. What is your reaction to Boehner`s
change of heart? What do you think broke him?

REP. KEITH ELLISON (D), MINNESOTA: Well, you know, I`m glad that good
sense finally prevailed over there. You`ll know that when the Senate deal
got done, Boehner came out and said it was a victory and then he got on the
phone with his caucus and they told him that they weren`t going for it and
then he kind of just capitulated to their obstructionism and then that kind
of caused the mess that we had last week and then here we are again.

The main thing I want to say, Ed, is look, last April, they almost
shut the government down. Last August, they almost defaulted on our
national debt. Obstructionism is the way that they do business. Maybe
today marks a departure from that very, very unfortunate thing they`re
doing to the American people.

SCHULTZ: Congressman Garamendi, did the Tea Party learn a lesson
tonight, that maybe they don`t carry a big enough stick? Or how do you
think they`ll respond in dealing with the speaker moving forward?

REP. JOHN GARAMENDI (D), CALIFORNIA: I think they`re going to come
back and fight fiercely for what they`ve always said they wanted -- to shut
down government, small government, get government out of the way. I think
they`re going to continue to fight for that.

I suspect we`re going to have further battles and it`s not going to be
very far away, Ed. The remaining 10 months of the payroll tax reduction is
still to be determined. That`s going to be a big fight beginning in
January up through February.

And we`re not going to let this thing go. And we`re not going to make
the middle class pay for a middle-class tax reduction, which is precisely
what the Republicans tried to do.

SCHULTZ: Well, it doesn`t sound like they`re going to give up.
Republican Congressman Kevin Brady of Texas, the House GOP tax cut
negotiator, said the following tonight. He says, "I`m willing to fight on
but in the end, House Republicans felt like they were re-enacting the
Alamo, with no reinforcements and our friends shooting at us."

Congressman Ellison, will the Tea Partiers revolt against Boehner and
force a vote tomorrow or will this be smooth sailing?

ELLISON: You know what? No one can really tell. I doubt it

But you know what? Nothing they do surprises me. I could tell you
this, though. That John is absolutely right. You know, we are going to be
arguing for the next 10 months and we`re going to be fighting every step of
the way. It`s going to cause a lot -- it`s call for a resolve and it`s
going to call for the American people standing up demanding that, you know,
we have sane, reasonable government and that we have some compromise.

So, get ready to be active out there, American people, because it`s
going to require that.

SCHULTZ: How much does this politically damage the speaker,
Congressman Garamendi? What does this do to John Boehner?

GARAMENDI: Well, he`s clearly weaker. He`s clearly weaker.

And that may be a good thing for the American public because we still
have to get that jobs bill passed. We still have to build the
infrastructure. We still have to put the teachers back to work, the police
and firemen. And we`ve got to make sure that we get this economy moving.

So the jobs program still has to be done. If the speaker is weaker,
maybe, maybe we could push through the remaining elements of the
president`s American jobs program. It`s exceedingly important.

And, by the way, they still have not abandoned their field of trying
to terminate Medicare and privatize Social Security. Those fights are
likely to continue in various forms through the remainder of 2012.

Now, we`re going to fight very, very fiercely for this. This is about
the very future of the American middle class and about the future of this
economy.

SCHULTZ: If 2012 is anything like this most recent fight, it`s going
to be a dandy down to the wire every time.

I think the president played this about as good as he can.

But one thing I really respect the Democrats for on this one,
gentlemen, is that it seemed all along you were prepared to walk from the
deal. You were prepared to say this is far as we`re going to go, draw that
line in the sand, and I think that made a big difference in all of this.
And I think it`s going to garner a lot of support from folks out there who
are on your political side.

Thanks so much. Congressman John Garamendi, Keith Ellison, with us
tonight here on THE ED SHOW.

Remember to answer tonight`s question there at the bottom of the
screen and share your thoughts on Twitter @EdShow. We want to know what
you think.

Up next, after John Boehner`s big loss, I wonder if the Republican
caucus is still calling him Braveheart? E.J. Dionne of "The Washington
Post" is here to weigh in on all of this.

Mitt Romney says he would have taken out Osama bin Laden the same way
President Obama did. We`ll introduce him to a guy who said the absolute
opposite. His name`s Mitt Romney, and it happened four years ago.

Stay with us.

(COMMERCIAL BREAK)

SCHULTZ: Coming up on THE ED SHOW, more on the payroll tax cut deal
with "Washington Post`s" E.J. Dionne.

The right wing is foaming at the mouth over the president`s and first
dog`s trip to PetSmart. I`ll have a special guest join me to discuss
puppy-gate in "Psychotalk."

Ron Paul says, you know, he didn`t know anything about this racist
homophobic content published in his newsletters in the `80s and `90s. Dr.
James Peterson will join me for that discussion later in this hour.

You can tweet us your thoughts throughout the show using the #EdShow.

Stay tuned. We`re right back.

(COMMERCIAL BREAK)

SCHULTZ: John Boehner and the Tea Partiers in the caucus lost big-
time today. This evening Boehner was asked about the political
consequences of digging in his heels on payroll taxes and whether it was
worth it. Here`s the answer.

(BEGIN VIDEO CLIP)

BOEHNER: Doing the right thing for the right reasons is always the
right thing to do. And while everyone asked for a full-year extension of
these programs, a lot of people weren`t willing to put the effort in as the
holidays were approaching to get it done. Our members were.

(END VIDEO CLIP)

SCHULTZ: Joining me now is E.J. Dionne, senior fellow at the
Brookings Institution and columnist for the "Washington Post" and friend of
mine.

E.J., good to have you with us tonight.

E.J. DIONNE, WASHINGTON POST: Thank you.

SCHULTZ: You bet. Happy holidays.

You know, how come it was the right thing to do today but not the
right thing to do yesterday for John Boehner? What happened here?

DIONNE: Because I think he added up all of the things other
Republicans were saying. You know, we got so accustomed to the newspaper
headline "Democrats in Disarray." It was almost programmed into the
computers.

I don`t think we`ve ever seen since President Obama took office the
kind of disarray you saw in the Republican Party. The Senate Republicans
did one thing. They thought the House was on board. The House sabotaged
that.

Senate Republicans say, well, wait a minute, Boehner never told us
that this was going to have that sort of problem. Boehner himself signaled
that he actually accepted this deal and then got pushed back by some of his
own right-wing members.

And I think what`s going on in the Republican caucus in the House is
not just some of the younger members. Indeed, a few of them said, wait a
minute, I don`t want to go to the voters, having killed the payroll tax
cuts. It`s the sort of second, third, fourth-term -- really right-wing
Republicans -- who are kind of making an alliance with some of the most
conservative Republicans. And it creates a huge problem for Boehner now in
going forward.

SCHULTZ: Well, I was going to ask you about this. I mean, when was
the last time we`ve seen a speaker placed in such an untenable political
position as he was today? There`s no political up side for Boehner at all
here that I can see.

DIONNE: The only -- I`ve been trying to figure this. The only
political up side I can think of is if Boehner did indeed go to his caucus
and say, guys, we`ve got to pass this or we`re going to be in a heap of
trouble. He will be in a position to say the next time, hey, you`d better
listen to me. Look how badly that went the last time around.

But I do think that there have been so many cases where Speaker
Boehner just couldn`t get his caucus to go where he wanted it to go that
you wonder how long does this speakership last -- or for that matter how
long is he going to want this job under these circumstances?

SCHULTZ: Well, I mean, look, the personality of the Tea Partiers and
how dogmatic they are, I don`t see them backing down at all. Earlier this
week, Boehner`s caucus was calling him Braveheart for staying the course.
Here it is.

(BEGIN VDIEO CLIP)

UNIDENTIFIED MALE: Look, this is a Braveheart moment. You, Mr.
Speaker, are our William Wallace. Let`s rush to the fight, get us back to
Washington. Let`s get our work done. And we`re doing that.

UNIDENTIFIED MALE: Is that what you told John Boehner, that he`s your
William Wallace?

UNIDENTIFIED MALE: That`s exactly -- well, I call him Mel Gibson. I
couldn`t remember William Wallace. But now I know, of course, and yes.

(END VIDEO CLIP)

SCHULTZ: Well, E.J., Mel Gibson died in that movie, and I think
politically John Boehner followed those footsteps somewhat today.

DIONNE: I think this was -- I think this was more the gang that
couldn`t shoot straight, myself.

You know, what`s interesting is that within that Republican caucus you
do have people who seem to be living in their own political world. And I
think it`s people who represent really, really conservative districts
where, you know, that old Reagan line, I`ve always liked quoting before,
you know, the right hand doesn`t know what the far right hand is doing.

And in this case, you`ve got districts where it`s very right or even
righter than that. And so, they believe they can go off and do this. They
won`t suffer much back in their districts.

But there are a lot of members from pretty Democratic districts now
who are looking over their shoulders because of the next election.

SCHULTZ: They are so ideologically bent, the Tea Partiers. This is
why they went to Washington, to be non-conformists. This is why they went
there, to disrupt, to delay, to break down the Obama agenda.

And I just -- what do you think their next move is going to be? Are
they going to put up with Boehner? Are they going to revolt? Are they
going to see more of this?

DIONNE: Well, I don`t know if they actually had the votes to toss him
out. They just have the votes to make his life miserable.

SCHULTZ: Miserable.

DIONNE: But this puts them in a particularly bad position because how
often have you seen Democrats insisting on a tax cut and Republicans saying
no, we don`t want to go there, which is where they started out on this
thing. They didn`t like this tax cut.

And I think the big political shift which as Senator Schumer said
earlier is being reflected in the polls is for years the choice was
Republicans are the tax cut party, Democrats are the tax increase party.
Now, we`re really talking about, wait a minute, what kind of tax cuts
benefit middle-class people and what kind benefit rich people?

SCHULTZ: Great to have you with us. E.J. Dionne, here on THE ED SHOW
tonight. Thank you.

DIONNE: Good to be with you.

SCHULTZ: In "Psychotalk" tonight, Republicans prove they can attack
President Obama on just about anything. Now, they`re going after his dog.

Plus, I`ll have a very special guest here on set to help me out with
this very special "Psychotalk."

Earlier in 2011, protests started in Wisconsin. And by the end of the
year they spread across the country, into Ohio and Michigan. We`ll show
you why working-class unrest was a year in the making.

(COMMERCIAL BREAK)

SCHULTZ: And in "Psychotalk" tonight, I have a special friend here to
help me out. His name is Rex.

Hey, Rex. How are you doing, buddy? Don`t go way. We`ve got to work
here. We`ve got to do "Psychotalk." How are you doing?

He`s been in the kennel. He`s a little camera shy here today. He`s
even puked on set earlier. But I think he`s OK now.

How are you doing, buddy? Yes. He`s a good dog. He`s a beagle. A
little camera shy, huh, bud?

You know, but some Republicans are taking a stand against dogs like
Rex, or at least one belonging to the president of the United States.

The FOX News radio Web site threw a fit about a White House holiday
card featuring the Obamas` dog, Bo. FOX`s article complained, the card
makes no mention of the word Christmas and instead focused on Bo, the first
dog.

Sarah Palin told FOX the card was odd and wondered why the president`s
Christmas card highlighted his dog instead of traditions like family,
faith, and freedom.

Well, today there`s even more evidence that the Republicans are anti-
dog. They`re upset with President Obama spending quality time with good
old Bo.

Well, the president has been stuck in Washington, D.C. because John
Boehner`s obstructionist Tea Partiers are at it again while his family is
out in Hawaii vacationing.

So, the president took his dog Christmas shopping. I mean, what else
are you going to do? You`re home alone. You`ve got the dog.

But some Republicans, they just couldn`t handle that.

(BEGIN VIDEO CLIPS)

REP. ERIC CANTOR (R-VA), MAJORITY LEADER: I saw the president out
yesterday doing his Christmas shopping, saw he brought his dog with him.
You know, we`re here. He could bring his dog up here. We are pet-
friendly.

BRIAN KILMEADE, FOX NEWS: I`ve never taken my dog shopping. I mean,
he took his dog shopping.

SEN. JOHN MCCAIN (R), ARIZONA: I think that the president should play
much more of a lead role rather than go shopping for his dog.

(END VIDEO CLIPS)

SCHULTZ: Now, we just played some sound bites of Republicans there,
and he doesn`t like them. Look at that. Settle down.

(BARKING)

SCHULTZ: I know we`ve got to work with them, Rex, but you can`t work
them over all the time.

All right. I feel the same way sometimes. All right. They`re not at
the back door. This is the good exit over here. Settle down.
Everything`s fine.

All right. John McCain is already on vacation in Arizona. But he
still has the audacity to slam President Obama for not working hard enough.
Look how they got Rex worked up. Of course, Republicans have only turned
against dogs since President Obama took office. I didn`t hear them
complaining about President Bush`s holiday videos.

(BEGIN VIDEO CLIP)

GEORGE W. BUSH, FORMER PRESIDENT OF THE UNITED STATES: Sure, Barney,
you and miss Beasley could be junior Park Rangers if you want to.

Barney, if I`m not mistaken, you`ve already got a pretty big job to do
right here at the White House with the Christmas decorations.

You`d better wake up, fella. There`s a lot of work to do around here.
We`re sprinting to the finish, not napping to the finish.

(END VIDEO CLIP)

SCHULTZ: He doesn`t like Barney either. So it was OK for President
Bush to spend time making movies with his dog, but President Obama can`t
take Bo to spend some money supporting American businesses? Democratic
dogs, don`t you think they deserve love? They have feelings too.

Have a heart for Bo and my friend Rex. It`s the holiday season. For
Republicans to criticize President Obama for taking his dog to Petsmart is
just ridiculous, plain old Psycho Talk.

Good job, Rex.

And one last note. My friend Rex, he`s a two-year-old Beagle. And
you can see he`s a pretty good watchdog against Republicans. Now, he was
left at the shelter -- quite a story here -- when his owner lost his job
and he had to move into a shelter himself. Rex and his sister are both
available for adoption from the Sean Casey Animal Rescue here in New York.

The shelter is at 155 East 3rd street in Brooklyn. Or you can give
them a call at 718-436-5163.

All right, everything OK? All right. Republicans are gone now, Rex.
Everything`s OK.

But I`ve got to do the story on Mitt Romney. Mitt Romney says any
president would have taken out Osama bin Laden.

Democrats are firing back. The fallout over Ron Paul`s past
continues. He says he didn`t know about the racist content in his
newsletters bearing his name.

An interview Paul gave proves otherwise. Stay tuned.

(COMMERCIAL BREAK)

SCHULTZ: Mitt Romney will say anything to put President Obama in a
bad light, even if it`s flat out false. Now he`s stealing a line from
Donald Trump, saying the president`s decision to kill Osama bin Laden was
no big deal.

(BEGIN VIDEO CLIP)

MITT ROMNEY (R), PRESIDENTIAL CANDIDATE: I don`t think it`s unusual
on the part of this president to have finally taken out Osama bin Laden.
After all, we`ve been looking for him for some time. Intelligence finally
gave us a good indication of where he was. He gave the order. And I think
-- I do think prior presidents would have done the same thing had they been
in the same position.

(END VIDEO CLIP)

SCHULTZ: Really? Democrats have pounced on Romney`s dishonesty. The
DNC released a new ad featuring prominent Republicans saying the bin Laden
raid was a gutsy call. Former Defense Secretary Robert Gates is not sure
any president would have done the same thing.

(BEGIN VIDEO CLIP)

ROBERT GATES, FORMER DEFENSE SECRETARY: I`ve worked for a lot of
these guys. And this is one of the most courageous calls -- decisions that
I think I`ve ever seen a president make.

(END VIDEO CLIP)

SCHULTZ: But Romney says that he would have gone into Pakistan
without the support of its leaders, just like Obama did.

(END VIDEO CLIP)

ROMNEY: That was the right course for him to take. I supported that
at the time and do now. In a similar circumstance, I think other
presidents, even other candidates like myself, would do exactly the same
thing.

(END VIDEO CLIP)

SCHULTZ: Well, in 2007, when then Senator Barack Obama from Illinois
said he would go into Pakistan to get bin Laden, this was Mitt Romney`s
response: "I don`t think those kinds of comments help to draw more friends
to our effort."

Mitt Romney doesn`t even agree with Mitt Romney about his attacks on
the president. No wonder Republicans keep looking for anybody but Mitt.
Let`s turn to Bob Shrum, Democratic strategist and professor at New York
University.

This is probably the best example of how this guy will say anything
and do anything. And yet the Republicans just let it go by. Does Romney
know he`s contradicting himself, Bob?

BOB SHRUM, DEMOCRATIC STRATEGIST: Sure, he knows he`s contradicting
himself. But he can`t live inside this conservative Republican party
taking any other position. What if he were to say that raid was a mistake?
He`d do himself enormous damage.

Look, he has no sense of shame about these things. He`s running ads
in Iowa blasting Newt Gingrich, blasting Rick Perry now, for their heresies
against conservatism. He has no sense that he himself is guilty at least
in conservative eyes of major apostasies.

I mean, this is a guy who was pro -- pro choice. Now he`s pro life.
A guy who said he was better on gay rights than Ted Kennedy, which was
absurd. Now he`s against gay rights.

Just go down the list. Issue of conscience after issue of conscience,
he`ll say anything to become president.

SCHULTZ: Yes. Here`s something else Romney said in 2007 about
getting bin Laden: "it`s not worth moving heaven and Earth, spending
billions of dollars just trying to catch one person."

Now compare Romney`s quote to this one from Barack Obama from around
the same time: "if we have actionable intelligence about high-value
terrorist targets and President Musharraf won`t act, we will."

How can Romney possibly hope to have a leg up on President Obama when
it comes to national security, when there are such distinct examples about
credentials and acting on them?

SHRUM: He can`t possibly hope to have a leg up. The fact is that if
you look at any opinion polling, even in times when the president`s had
difficulties over the economy -- although that`s getting better -- people
have given him enormous credit as commander in chief.

They have huge trust in him to conduct this fight against terrorism.
And Romney himself I think -- you know, he was governor of Massachusetts.
He`s relatively unschooled in foreign policy. He kind of makes it up as it
goes along.

The thing that`s interesting about the president is people worried
that he didn`t have enough experience, that that phone was going to ring at
3:00 in the morning, he wasn`t going to give the right answer. On question
after question after question, whether it`s going after bin Laden, finally
keeping the commitment to leave Iraq, the way he`s drawing down in
Afghanistan, that phone has rung at 3:00 in the morning, and he`s given the
right answer.

SCHULTZ: Yes.

SHRUM: And I think that may become more important by next November
than people suspect it will be now.

SCHULTZ: Well, George H.W. Bush has come out in support of Mitt
Romney. He seems to be picking up more support from traditional
Republicans. What does this mean, and does this help?

SHRUM: Oh, sure, it helps. Look, the Republican establishment`s
going to win again. The Republicans are almost certainly going to nominate
the next guy in line. We`ve been searching for the un-Romney for months
and months and months. I think Romney is probably going to win. I think
he may very well win Iowa, because he`s the un-Cain. He`s the un-Bachmann.
He`s the un-Gingrich. He`s the un-Paul.

SCHULTZ: You think he could win Iowa?

SHRUM: I think he can win Iowa. Look, there are some polls --
there`s one poll that shows him slightly ahead. I think he`s dumping a
huge amount. His Super PAC, millions of dollars of negative ads on
Gingrich and now Perry, because they don`t want Perry to revive. Because
either he`s going to win Iowa, in his view -- that`s his game plan. Or
he`s perfectly happy, he wins by losing, if he comes in second and Ron Paul
comes in first, because Ron Paul is an unthinkable Republican nominee.

The Republican party will never nominate him. Any attempt to actually
get to the point of nominating him would shatter that party.

SCHULTZ: I`ve had some staunch conservatives like Richard Viguerie
tell me not Romney, not now, not ever. And of course, the Tea Partiers
aren`t satisfied with him. Do they sit this one out?

SHRUM: No. In the end -- well, look, one possibility is that Paul
will take revenge by going out there and running as the third-party
candidate. But in the end, they all said -- a lot of them said not McCain,
not now, not ever; and when he got the nomination, they were for him,
however grudgingly.

Romney is the only -- there`s an old saying in politics, who else you
got? Well, we`ve been through all of them. They don`t seem to have
anybody else. I mean, Gingrich I thought might be Teflon, but he isn`t.
Instead he turns out to be Velcro. All these charges are sticking to him.
And quite frankly I think Romney`s on his way to the nomination.

SCHULTZ: Well, I`ll be in Iowa next week. I`m looking forward to
seeing what the Romney camp is doing down there. Bob Shrum, have a great
holiday. Great to have you with us tonight.

SHRUM: Merry Christmas to you, Ed.

SCHULTZ: You bet. Protests over financial inequality dominated
headlines in 2011. But the facts show we`ve been headed in this direction
for many years. We`ve got charts. We have charts to prove it with Ezra
Klein, coming up next.

(COMMERCIAL BREAK)

SCHULTZ: There has been a lot of talk this year about income
inequality and inequality basically in this country in a lot of different
facets of life. People are in the streets and politicians are running
scared. For months, I have told you that this chart right here is the one
that you need to consume as an American. I`ve said that this chart tells
you everything you need to know about the income gap in this country.

Because over the last 30 years -- we can take it back to 1979 -- for
most Americans, wages have stayed flat. That`s the blue line. The top one
percent of income, where has it gone? It`s gone through the roof. And you
might think that`s a good thing.

What about the folks down here? What do you think they think? That`s
where the majority of Americans are big-time. It makes sense, in a lot of
sense, when you see it all in simple terms like this.

Ezra Klein of the "Washington Post" also gets the impact of charts.
He put together some of the best ones from this year, like this one, which
shows corporate profits skyrocketing over the past three years, while
compensation for workers, where does it go? It goes in the opposite
direction.

Economist Jared Bernstein drew a helpful doodle on here to show you
how bad the chart really is.

Here`s another chart, if you want to know why people are in the
streets. This is the number of hours a month an average person needs to
work in order to pay their rent. Hours per month just in order to pay the
rent. This is 1950, 1960, 1970, 1980. Here we go, 1990. Look what has
happened in the last 20 years when it comes to people just having to put
hours into work just to pay their rent.

It`s gone up steadily over the past 60 years. But it`s more than
doubled in the last decade.

So who`s getting ahead? Let`s bring in MSNBC policy analyst Ezra
Klein, who pulled together the year`s 18 best charts for the "Washington
Post." Ezra, great work.

EZRA KLEIN, "THE WASHINGTON POST": Thank you. Good evening.

SCHULTZ: How do we reverse these lines that we`re talking about in
these charts? I mean, if it -- if they -- can they turn around that fast,
in your opinion?

KLEIN: Not that quick, no. So the first chart that you showed,
that`s coming from Jared Bernstein. What you`re seeing there is you`ve had
a massive rebound in corporate profits, with no rebound in compensation.
That is a little tough to turn around, because in order for that rebound in
compensation to come back, these businesses need someone to sell to in
America. A lot of that rebound you`re seeing was coming from selling
overseas and going into new markets.

The other chart you showed, the one about the toil index, that`s from
Robert Frank at New York University. And his point is that we`ve gotten
into a competition with one another. We just keep buying bigger and bigger
houses not because they make us any happier, but because everybody else is
buying bigger houses, and those houses are in better school districts; we
need that for our kids.

That also -- it`s a cultural thing. It`s a societal plan. He`s got
tax plans and other things that would help us get around it. But it would
fake a while to turn anything that big around.

SCHULTZ: Ezra, it`s pretty clear that the White House and Democrats
have embraced the message of income inequality. What made them finally see
the light?

KLEIN: I think they would say they saw it all along. I think the
reality is that Occupy Wall Street had a very, very big role in changing
the conversation. There`s another chart we don`t have here tonight, but
it`s by Dylan Byers (ph), I think, over at "Politico." And he showed the
media mentions of inequality after -- before and after Occupy Wall Street.
And that chart, it just goes up.

It is a straight line up. They had a dramatic role in changing the
conversation. And I think they showed the White House that inequality was
striking a chord with people, that it was a way that helped people think
about what had happened to the economy in recent years, and the sort of
unfairness, in which it had stopped working for people who had been playing
by the rules and begun working all too well for folks who didn`t seem to be
playing by any rules at all.

SCHULTZ: I want to look at one of the other charts, if we can, on
your list. This came from Mark Zandy. It shows the decline of household
debt over the past three years. Is that an optimistic sign? People are
paying down debt. But I it also -- that`s what it looks like. But also,
the access to money might be playing in here too, because the markets are a
lot tighter when it comes to someone getting a loan. What do you think?

KLEIN: Right. So Mark Zandy says this is his most optimistic chart.
What you`re seeing there are delinquent households, households that are
having trouble paying off their mortgages. That is lower now than it was
before the recession began. So you`re seeing what economists call
deleveraging beginning to sort of play itself out, not totally. We`ve got
a lot of debt in this country. We`ve got a lot of people buried under bad
loans, a lot of people underwater on their mortgages.

I don`t want to minimize any of that. But that giant rise has begun
to finally moderate. And that begins to suggest that if we could just get
a couple months without some massive crisis somewhere in the world,
something like the Euro debt issue we`re having right now, there is room in
the country at this point for recovery.

See that right now. We`re having pretty good growth in this quarter.
Might end up 3.5, 3.7. But next quarter, because of Europe and other
things, we might be back down to about two percent.

SCHULTZ: Ezra Klein, always a pleasure. Good to have you with us
tonight.

KLEIN: Thank you.

SCHULTZ: Ron Paul denies having anything to do with a series of
newsletters containing racist statements. But two interviews Paul gave
over a decade ago say otherwise.

Dr. James Peterson, next. Stay with us.

(COMMERCIAL BREAK)

SCHULTZ: ED SHOW survey tonight, I asked is John Boehner the most
ineffective Speaker in recent memory? Ninety eight percent of you said
yes; two percent of you said no.

Coming up, presidential candidate Ron Paul keeps changing his story
about newsletters published under his name. Dr. James Peterson joins me
next.

(COMMERCIAL BREAK)

SCHULTZ: It looks like Ron Paul could win Iowa. And now the
candidate`s past is getting a closer look. In the `80s and `90s, Paul put
his name on several newsletters, "Ron Paul`s Political Report," "Ron Paul`s
Freedom Report." You get the idea.

Well, here are a few examples of what was published in those
newsletters. "We are constantly told that it is evil to be afraid of black
men. It is hardly irrational." "Order was only restored in L.A. when it
came time for the blacks to pick up their welfare checks."

Paul was asked about the newsletters by CNN.

(BEGIN VIDEO CLIP)

REP. RON PAUL (R), PRESIDENTIAL CANDIDATE: I didn`t write them. I
disavow them. That`s it.

UNIDENTIFIED FEMALE: So you read them, but you didn`t do anything
about it at the time?

PAUL: I never read that stuff. I`ve never read -- I came -- I was
probably aware of it ten years after it was written.

UNIDENTIFIED FEMALE: These things are pretty incendiary. You know,
the --

PAUL: Because of people like you.

UNIDENTIFIED FEMALE: No, no, no, no. Come on. Some of the stuff was
very incendiary. And you know, saying that in 1993, the Israelis were
responsible for the bombing of the World Trade Center, that kind of stuff.

PAUL: Yeah. Good-bye.

UNIDENTIFIED FEMALE: All right. All right. Thank you, congressman.

(END VIDEO CLIP)

SCHULTZ: Paul`s claims are not holding up. Here`s a 1995 C-Span
interview in which Paul seems to be quite knowledgeable about his
newsletters` content.

(BEGIN VIDEO CLIP)

PAUL: I also put out a political type of business, investment
newsletter. It sort of covered all these areas. And it covered a lot
about what was going on in Washington.

(END VIDEO CLIP)

SCHULTZ: And a 1996 "Dallas Morning News Report" shows that not only
was Paul aware of the newsletters` content, he wrote some of it. "Paul
wrote in his political newsletter in 1992 that 95 percent of black men in
Washington, D.C. are semi-criminal or entirely criminal. He also wrote
that black teenagers can be unbelievably fleet of foot. Dr. Paul defend
defends his writings. In an interview, he said they were being taken out
of context."

Joining me now is Dr. James Peterson, director for Africana Studies
and associate professor of English at Lehigh University. Professor, good
to have you with us tonight.

DR. JAMES PETERSON, LEHIGH UNIVERSITY: Thanks for having me.

SCHULTZ: Should these statements disqualify this man from office of
the presidency?

PETERSON: I believe so, especially to the extent to which we can
actually connect him to them, and the extent to which he plays sort of
political maneuvers and tries to deny himself from being involved with
them. Right? Because that goes to credibility. But then also it goes to
his own political ideology and his social ideology.

Remember, also, this is not just racism. There`s anti-semitism there.
There`s some sexism there. There`s home homophobia there. There`s a lot
in these newsletters that if we sort of put Ron Paul in the same context as
someone like a Herman Cain or a Newt Gingrich, where we go back 15, 20
years and look at their behaviors and look at what they did as a way of
interpreting what they`re going to do going forward, that for us should
suggest that Ron Paul either has to come up and -- come out and really
apologize and explain this away, or we`re going to run into some problems
down the line.

SCHULTZ: Well, he said in a 1996 "Dallas Morning News" interview that
his statements were taken out of context. What do you think?

PETERSON: Well, that`s kind of the stock answer for these kinds of
issues. Again, it`s very, very difficult for me to believe that a
newsletter that has his name on it, even in the `90s, is something that
he`s not going to vet or in any way see. I mean, wouldn`t he understand
then that that would -- or that could diminish his brand?

And so wouldn`t he sort of be policing that a little bit more closely?
That answer just doesn`t make sense. And I think when you see him walk
away from the CNN reporter, that`s very, very telling. That suggests to us
that he`s not prepared to handle being the front-runner in this sort of
Republican presidential revolving door, and not prepared to handle the heat
for some of the things that he said in some of those newsletters.

SCHULTZ: Do you think he`s lying? I mean, he said in that interview
that he hadn`t read them and he didn`t write them. And then in the other
interview, he acknowledges knowing about its content. I mean, what do you
make of that?

PETERSON: I mean, I don`t want to call him a liar, but I think, you
know, he needs a much better political calculus for how he`s handling this
right now. The bottom line is the content of those newsletters is
disturbing. It`s racist. It`s sexist. It`s homophobic. And in some
places, it`s anti-semitic.

And he needs to answer the charges of that newsletter because it had
his name on it. There`s no escaping that for him. He can say that he
didn`t read it or he did read it. He needs to sort of explain that away,
more than disavowing it too.

He`s got to actually explain what was the process of circulating those
letters. Did he actually make money off of that? And look, there are a
lot of white supremacist groups that are rallying to his defense right now.
Those are the same kind of groups that I believe supported that newsletter
in the beginning.

He`s got to distance himself from that or yes, I think it will
diminish his capacity to do well in this race, especially beyond Iowa.

SCHULTZ: Do you think the Republican party should step into this one?
Should the RNC chair make a statement? Should someone in a leadership
position step up and say that this is uncalled for or --

PETERSON: In a perfect world, the RNC and other conservative leaders
would step up and sort of distance themselves from this, explain they`re
not a part of this. But this is not a perfect world.

SCHULTZ: They`re not used to doing that. That`s for sure.

PETERSON: No, they are not.

SCHULTZ: Dr. James Peterson, have a great holiday.

PETERSON: You too, sir.

SCHULTZ: That`s THE ED SHOW. I`m Ed Schultz. And again, here`s the
information for the Sean Casey Animal Rescue here in Brooklyn, New York.
If you`d like to know more about Rex, who joined me earlier in the show
tonight, Rex and his sister -- they bark when they see Republicans.
There`s no question about that. We do know that about Rex.

And he`s a friendly fella. And he`s camera friendly too. There you
see the number. You can give them a call and get hooked up.

"THE RACHEL MADDOW SHOW" starts right now. Good evening, Rachel.

RACHEL MADDOW, MSNBC ANCHOR: Ed, I feel like you and Rex is a merry
Christmas present to the whole country. That was so awesome, man.

SCHULTZ: Well, it was unrehearsed and he was actually out on the set
earlier and threw up. So he got all the nervousness out..

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

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