Hardball, February 7, 2005


MATTHEWS: Welcome back to HARDBALL. Today, President Bush submitted his $2.5 trillion budget proposal to Congress. The plan would eliminate or cut funding for, guess what, 150 programs from the federal budget. And the Pentagon is the only department which would see a budget increase.


GEORGE W. BUSH, PRESIDENT OF THE UNITED STATES: It is a budget that focuses on results. The taxpayers of America don`t want us spending our money on something that is not achieving results. It is a budget that reduces and eliminates redundancy. It is a budget that is a lean budget. I fully understand that sometimes it is hard to eliminate a program that sounds good. But by getting people to focus on results, I`m saying to members of Congress, show us the results as to whether or not this program is working, I think we`ll get a pretty good response.


MATTHEWS: Ongoing military operations in Iraq and Afghanistan are not included in the budget, however, and neither is the cost of the president`s plan to reform Social Security. Princeton economist Paul Krugman is a "New York Times" columnist and author of the book "The Great Unraveling: Losing Our Way in the New Century." John Fund is with "The Wall Street Journal"`s OpinionJournal.com. And Dana Milbank is with "The Washington Post." Let me to go to John -- Dana first. Dana, what is going to be the big noise tomorrow on this in the papers?

DANA MILBANK, NATIONAL POLITICAL REPORTER, "THE WASHINGTON POST": Well, obviously, we`re going to do a whole bit about all the pain that is inherent in this budget. And it is the most serious cuts that we`ve seen in the budget in many, many years, going back to the Reagan years. On the other hand, as you point out, they left out not just Iraq, not just Social Security, but things like fixing the alternative minimum tax. We`re talking about hundreds and hundreds of billions of dollars that aren`t included in here. So, in a lot of ways, they have sort of jettisoned some of the more bad news that is to be expected and left that out of equation and made a lot of sort of happy assumptions in here. So, it`s really -- there may need to be more pain than is inherent here.

MATTHEWS: John, wasn`t one of the problems of fiscal policy going back to the `60s and Lyndon Johnson was the chicanery, if you will, of not counting the cost of the war? And here we have a decision by the president to offer the budget, which is a big document -- it`s the main document of the federal budget and the federal government each year -- and not including the $80 billion he`s going to add on in the supplemental, not including apparently the big costs we`re going to run up in Social Security reform if we get it?

JOHN FUND, COLUMNIST, "THE WALL STREET JOURNAL": For decades, budget have been political documents. And they are used as press releases. Chris, there are no budget cuts really in this document. The 150 programs that are either cut or eliminated total less than 1 percent of the budget. What`s happening is a few programs are growing slower than they previously were, perhaps down to the rate of inflation. But 81 percent of the budget, as Dana pointed out, 81 percent of the budget are entitlements, national defense or homeland security. And they`re not covered by this. And they`re exploding in growth.

MATTHEWS: Well, you`re adding to my case, which is, this document is not an appropriate document if it`s for educational purposes, even for the departments of the country. Let me ask you. I asked you the question, why isn`t the Social Security proposals on this budget proposal?

FUND: Because they would look bad.

MATTHEWS: Why is...

FUND: Because we have a ridiculous scoring system in the Congressional Budget Office and various other budget offices that don`t take into account economic growth that are also political documents in their own right. The problem is, the entire budget process has been politicized. If your viewers really want to know what`s going on, I`ll just tell you. The federal budget is continuing to go up.

MATTHEWS: Let me go back to the same point with Paul Krugman. The president of the United States, is he repeating what Lyndon Johnson did back in the old days of the Office of the Budget? Is he hiding the cost of war?

PAUL KRUGMAN, COLUMNIST, "THE NEW YORK TIMES": Oh, it`s much worse than that. He`s hiding the cost of war. He`s hiding the cost of alternative minimum tax, as you mentioned. He`s hiding the cost of likely expenses in other programs. He`s hiding the cost really of the tax phase- outs that are not going to happen because of the -- this administration. So, no, it`s a deeply dishonest document. And, by the way, it didn`t always look like this. Just look at -- actually look at the document. If you look at Clinton-era documents, they look like budgets. This looks like a comic book. This is silly stuff. Let me say, although the cuts are not a lot of money -- this is the point. A lot of huffing and puffing about, we`re going to be austere. It`s not a lot of money. It is actually quite savage on the things that it affects. And there`s a fine sense of priorities here. We`re going to see cuts in food stamps for working families. We`re going to see cuts in child care assistance. We`re going to see a squeeze on Medicaid that is probably going to lead to a large number of people being forced off medical care. And we have got some additional -- even beyond making the tax cuts permanent, we`re going to get some additional tax breaks for high-income families.

FUND: Mark McKinnon has said that all of the cuts in Medicaid are going to be plowed back to the states in other programs. He is on record as saying that.

KRUGMAN: Yes. Right.

FUND: Farm programs take the most savage cuts. Farm programs, the environmental groups are thrilled by this program, because finally there will be a cap of $250,000 on maximum farm payments, most of which go to very wealthy farmers.


FUND: So there are a few good policy changes in this country.


FUND: I also think they`re going to try to force some reform in Amtrak, which badly needs it, and restrict it. Most of the federal...


MATTHEWS: I want to keep up with my question as to the war costs not being counted in the budget and the Social Security proposals not being counted in the president`s budget. I want to go back to Dana, who covers Washington for "The Washington Post." Give me an assessment as to the pain factor here for the programs the president does intend to cut on the domestic side.

MILBANK: Well, the president is going to get a lot of credit here for showing a sense of fiscal discipline. The budget director, Josh Bolten, acknowledged today that a large number of these programs they are proposing to cut have in fact been proposed for cuts or for elimination and never happened. So there`s a lot of reason to believe that it won`t actually happen again. And we were talking about cuts to farm subsidies. Rather unlikely. Talking about holding Medicare cost increases to 5 percent a year -- all of this extremely unlikely. But who is to say otherwise? So it sounds like we`re imposing a great deal of fiscal discipline at this time, but we have sort of redefined it. We`re now talking about nonsecurity discretionary spending, which is a tiny little thing. If we were to say, I`m defining the federal government by how many pencils I`ve got in my drawer and I`m only buying two this year, sure, I`ve reduced it to three in the previous years.

MATTHEWS: Dana, when I look at the map, I`m still looking at a red and a blue map, our divided country. I think, although this is a generalization, a lot of the farm areas of our country are in red states, in the middle of the country, although there`s some obviously milk production in Vermont and places like that, and tobacco production and cotton production. But, mainly, the red states reflect the abundance of our agricultural system. Why would the president pass the buck to them?

MILBANK: Well, but there`s more to come. For example, we may yet get, with tax reform, the removal of the deduction for state and local taxes. That`s what people are saying is actually going to become a blue state tax. So those of us in the blue states are going to get our share, too.

MATTHEWS: When is that coming?

MILBANK: Well, they`re due to report in July. So pay your taxes now.

MATTHEWS: How will you be able to live in Massachusetts or New York or anywhere like Maryland?

KRUGMAN: Or New Jersey, by the way.

MATTHEWS: How would you be able to live in those states if you couldn`t write off the state tax? Because you also have a county tax thrown in, in addition to that.


MILBANK: We`d be better off on a farm.


FUND: ... exercise fiscal discipline for a change, which they don`t do. Go to New York and go to Pennsylvania. Those governments have exploded out of control.

MATTHEWS: And we would also have to close the ports where the people come in, too, because the poor people arrive in New York, right, and they stay on the East Coast and they cost money, right?

FUND: Everybody needs to go on a budget diet and no one really is. That`s the bottom line.

MATTHEWS: Let me ask you, is there any justification among you three gentlemen -- anybody jump up who believe there is -- for not telling truth in the budget? You, first, John Fund.

FUND: I...

MATTHEWS: Why doesn`t president tell the truth about the cost of his dramatic proposal on Social Security, his increasingly expensive war? If the war is necessary, why wouldn`t he tell us the cost? He doesn`t have to be bashful here.

FUND: Because the federal government has been taken over by P.R. operators throughout the government. Congress has been lying about the budget for years. The president has been lying about the budget for years. Unfortunately, this is a bad habit. And the only losers are the people who actually wants to know what is really going on.

MATTHEWS: Does anybody want to demur on that, starting with you, Paul?

KRUGMAN: Well, it`s just not true that they all do it. It was in fact the case during the `90s budgeting was actually quite honest. You can talk about all kind of things, but the fact was that the budget gave you a pretty picture of what was going to happen. And the budget forecasts actually consistently came in more pessimistic than the reality. So this is something new.


FUND: Because we had a tremendous economic boom, including dot-com bubble of the `90s, it might have been a little bit easier to perhaps put out a few better numbers. But I`m telling you...


KRUGMAN: I`m sorry. Clinton did not hide huge chunks the way these guys...


FUND: Leon Panetta admitted they used an awful lot of budget gimmicks. And he is on record saying that.


MATTHEWS: Two wrongs don`t make a right.

FUND: no, of course not. But to say Clinton good, Bush bad is to ignore reality.

KRUGMAN: I didn`t. I said it hasn`t always been this bad. And that`s the point.

MATTHEWS: OK, let me go back. Is this the worst budget dishonesty you`ve seen, according to your view, Paul?

KRUGMAN: Yes. Yes. There`s been nothing like this.




MATTHEWS: Being a Washington expert, I want you to be the referee here. You were are "The Washington Post" representative...


MILBANK: Chris, it`s dangerous to get in between these two guys.

MATTHEWS: But it is the best process newspaper there is about Washington and how it runs. Would it be a fair estimate to say that there is an unusual amount of chicanery at work here?

MILBANK: I think we`re seeing progressively more chicanery. But I don`t believe it is one side or the other.

I think we`re just getting to the point -- look, we have five-year time frame for things when it makes sense for the government to do that. But if it makes it look bad, we`ll go to a 10-year time frame.


MILBANK: There`s too many ways to game the system.

MATTHEWS: So the new system is last in, most fallacious, right? Anyway, we`ll be right back. Coming up, will conservatives rebel against President Bush`s guest worker program? Immigration is always hot. It`s getting hot again. And what is Howard Dean`s plan to bring Democrats back from the wilderness? We`ll be right back with John Fund, Paul Krugman and Dana Milbank. And don`t forget to check out Hardblogger, our political blog Web site. Just go to HARDBALL.MSNBC.com.


MATTHEWS: How big a political risk is President Bush taking with his new plan on immigration? We`ll be back with Paul Krugman, Dana Milbank and John Fund when HARDBALL returns.


MATTHEWS: We`re back with Paul Krugman of "The New York Times," John Fund of "The Wall Street Journal" and Dana Milbank of "The Washington Post." You start this time, John Fund, because you`re eager on this question. And the question is illegal immigration and how the Bush administration is handling it. Does their plan allow people to come to this country and work without authorization, actual papers of immigration, green cards, if you will, does that solve the immigration problem?

FUND: Well, at least it would be a practical step which would get us a little bit beyond the complete mess we have now, where we`ve got 13 million people without papers in this country. The Presaro (ph) program, which Eisenhower ran for the 1950s until the unions shut it down, cut the number of arrests at the border from 950,000 a year down to 50,000 a year. It wasn`t a perfect program. There were some problems with it. But the...


MATTHEWS: That was only for people -- excuse me -- who are willing to come to America, pick up a check, perhaps working in the fields, taking that cash and heading back to Mexico or somewhere else with the money for their families.


MATTHEWS: But if a person wasn`t willing to do that, but if a person wasn`t willing to do that, who really wanted to move here, to live here and bring their families here, they still had to come in illegally.

FUND: An updated guest worker program, which would require that people go back after three years, which would be the longest term of employment -- they would have to go back. It would also give no advantage to anyone for citizenship if they already were here and had broken the law. Those basic principles -- also, letting them keep their Social Security payments, which are now taken from them if they`re on the books. And they are not going to get those benefits. Those are the principles which at least would ameliorate the problem. Right now, we have two sides, two extreme sides, that frankly are not going to work. We`ve got people who simply don`t want to enforce the border controls. And, of course, there are practical problems in doing that in a free society. There are also people who basically want to ignore the problem. And I think...

MATTHEWS: For political reasons.

FUND: For political reasons. Both sides want to ignore the problem for political reasons. And a lot of people don`t want a solution. A guest worker program along the lines the president said would help get us there.

MATTHEWS: OK. Let me go to Paul Krugman. Isn`t it true that both parties want the Latino vote? It`s very much up for grabs.


MATTHEWS: And neither side wants to be known as a tough enforcer of the border.

KRUGMAN: And it`s -- look, this is an issue that just cuts right at right angles to the usual political divide. Both the left and the right are divided on this. And I`m kind of enjoying the spectacle, to be honest, because here you have got the two wings of the Republican Party, the cultural nativist America, America side and the cheap labor plutocrats, basically.


KRUGMAN: Who are in conflict with each other. And I think Bush is trying to find a way to basically serve the plutocrat constituency, while not making too much offense with the people who won him the election. So this is -- I`m kind of taking some popcorn and watching this one.

MATTHEWS: But isn`t it interesting -- let me go to Dana Milbank -- that you see a lot of anger about immigration, illegal immigration in California? You don`t see so much in Texas. Is that what we`re looking at here? Simply all politics is local and the president doesn`t have an experience of angry Anglos at too many illegals coming in around them?

MILBANK: Well, if he doesn`t, he`s about to get some. I was watching the State of the Union, the response on the Republican side. Even Social Security didn`t split them like this. Half of them are sitting on their hands and half of them are cheering wildly. So, as Paul was saying, it really a splitting away the business crowd from the other conservatives. And, indeed, this is an issue -- and let`s give him credit for it -- where Bush does feel personally strongly about it. It may also coincide with the Chamber of Commerce. But this is something that has been at his heart for a long time. And he`s going to do it even though it may have a real political cost to him.

FUND: Chris, I`m from California. I can tell you one of the differences between California and Texas. In California, there certainly are an awful lot of illegals who get public assistance, who use public hospitals. Texas controls that a lot more. Obviously, they go to public schools. That`s a federal mandate. But Texas tries to assimilate them.


FUND: And California has a lot of multiculturalists who try to teach them bilingual education, which prevents them from learning English and doesn`t let them assimilate.

MATTHEWS: Why do we call them undocumented workers? Why not illegal aliens?

FUND: I just called them illegals.


MATTHEWS: So many people say undocumented, like, I left my driver`s license at home. It is not a question of not having the paper. It is a question of being in the country illegally.

FUND: We cannot build a Berlin Wall to keep people out.


FUND: But let`s at least use the English language properly.

MATTHEWS: And why don`t Republicans support a national I.D. card that works, so we could stop this right now?

FUND: Because it frankly would involve biometrics.

MATTHEWS: What`s wrong with that?

FUND: Or something that would really be intrusive and...

MATTHEWS: Well, there`s a solution. So the solution is the problem here. You would rather have illegal immigration than have national I.D. cards. So your solution is, no national I.D. card, illegal immigration.

FUND: When Dianne Feinstein from California proposed that, she was shot down by her own fellow Democrats.

MATTHEWS: Well, Dianne was right. When we come back, a beer maker salutes U.S. troops in a TV commercial during the Super Bowl. More with Paul Krugman, Dana Milbank and John Fund when we come back. You`re watching HARDBALL on MSNBC.


MATTHEWS: We`re back with Paul Krugman, Dana Milbank -- Dana Milbank -- and John Fund. Let`s take a look at an Anheuser-Busch ad saluting the American troops which ran during the Super Bowl.






MATTHEWS: Paul Krugman, that was an Anheuser-Busch ad yesterday at the Super Bowl. In or out? OK to use patriotism...


MATTHEWS: ... and the inspiration we felt in that ad to sell beer?

KRUGMAN: No. I mean, support the troops. Don`t use them to sell beer. It`s -- you know, we all feel -- we all support the troops. But this -- this is exploitation. And it`s part of the basic lack of seriousness about a lot of what`s going on in this country.

MATTHEWS: Could it be that Anheuser-Busch was rendering a public service by creating a stirring portrait of what might have happened?

KRUGMAN: Oh, come on.

MATTHEWS: Those were real soldiers, by the way.

KRUGMAN: Yes. Nonetheless, it`s business. You don`t spend money -- if you really wanted to support the troops, you would just do it without making it clear that this was from a beer company.

FUND: Chris, running the corporate name is something everyone does, including public broadcasting. There was no picture of a beer can at the end of that ad. It just said Anheuser-Busch. There`s nothing wrong with letting people know that they wanted to have this sentiment. There wasn`t a beer can placed in any of the airport...


MATTHEWS: Once again, I go to Dana Milbank.

FUND: Come on.

KRUGMAN: Come on.

MATTHEWS: ... for strict analysis. Dana, to break this tie with hard reportage, is it possible to distinguish between an ad to sell beer and a company that has ads trying to actually to salute the country in its missions?

MILBANK: Well, that`s fair. Look, the troops have been exploited since the landing on -- the president`s landing on the aircraft carrier. So what is wrong with a beer company doing it now? The real crime is that the troops in Iraq aren`t allowed to have a Budweiser.

MATTHEWS: What about Michael Douglas yesterday? Everybody OK with his salute to the troops at the -- middle of the stadium right before the game started?

FUND: I must have been out of the room.

MATTHEWS: I was there.

KRUGMAN: I didn`t get it.

MATTHEWS: Well, it was very dramatic. And I was cheering like everybody else. So I say it`s OK, OK? Because it was. Everybody cheered. It was really about the troops. It wasn`t about the wars. But let me ask you, speaking of the wars, Paul Krugman. A man of your intellect might be able to see forward. Are we going to Iran next?

KRUGMAN: Don`t have the troops. I mean, it comes down to that. Right now, our policy is to speak loud and carry a twig. We just don`t have the wherewithal.

MATTHEWS: No lightning strikes on the potential nuclear installations in Iran?

KRUGMAN: Unfortunately, the Iranians know about that. And so we might get some. But everybody has tried to game this. There`s been a lot of war games at the Pentagon and elsewhere trying to see, now, what -- how could this work out? And the answer is, it can`t.


FUND: Chris, Condoleezza Rice...


FUND: ... is emphasizing public diplomacy. We`re going to take the number of hours we broadcast into Iran from an hour to four and a half hours a today.

MATTHEWS: Can we stir things up to get the seculars, the more moderate people, to push the mullahs aside or just make them more...

KRUGMAN: I mean, the reality is that...

FUND: There will be...

MATTHEWS: Go ahead. Go ahead, Paul.

KRUGMAN: The reality is that the mullahs are taking over Iraq, probably kinder, gentler mullahs, but, basically, we have installed a soft Shiite theocracy in Iraq.


KRUGMAN: They`re the ones who are winning this, not us.

MATTHEWS: Let me ask Dana. Does the threat of an America action against your country, in this case Iran, solidify people right and left, secular and religious, old and young, against us?

MILBANK: Well, it is hard to imagine that they`re taking it seriously. After the president`s inaugural address, the first thing White House aides did was say, wait a second. It was just an idea. He doesn`t really mean actual action behind these.


MILBANK: So if the Iranians are perceiving action, they`re not looking at the right thing.


MATTHEWS: Yes, I know. And when you say you`re not on our agenda to attack, I thought that was kind of an amazing comment.

FUND: Chris, you know from South Africa to Ukraine, history is replete with regimes that looked completely strong and ultimately were crumbling from within.

MATTHEWS: Yes. I know.

FUND: So, when the Iranians crack down, it could be a sign of weakness.

MATTHEWS: I`ll give you a bigger one, the Soviet Union.


MATTHEWS: Anyway, thank you, Paul Krugman.

KRUGMAN: Thanks a lot.

MATTHEWS: Thank you, John Fund. Thank you, Dana Milbank, of "the Post." Tomorrow on HARDBALL, I`ll talk to journalist Jim Dwyer, co-author of "102 Minutes: The Untold" -- and it is untold -- "Story of the Fight to Survive Inside the Twin Towers," that terrible morning. And on Wednesday, reality TV mogul Mark Burnett joins us. Right now, it`s time for the "COUNTDOWN" with Keith Olbermann.

Originally broadcast, 2.7.05