The Rachel Maddow Show, Transcript 12/07/12

Guests:
Peter Orszag, Kenji Yoshino
Transcript:

EZRA KLEIN, GUEST HOST: Good evening, Ed. And thank you very much.

And thank you at home for sticking around for the next hour.

A dreary December day turned out to be full of news today, including
big news out of the Supreme Court, things edging towards the brink all over
the Middle East, and one of the coolest pictures ever having a big revival.

But we begin with important news out of Washington. For all the
squabbling politicians and all the whining pundits, we can announce to you
tonight, right here, right now, there`s a budget deal that`s becoming
clear. Our long national nightmare might almost – and I repeat, it`s
Washington – almost be over.

Now, this is kind of like one of those kids games where you have to
look at a picture that looks like nonsense until your eyes filter out the
garbage and you can finally see the sailboat. That`s what`s going on in
Washington. You need to filter out all the garbage.

Like take yesterday, for example. I don`t usually tune into C-Span 2
for comedy. I tune in because it`s just good television. But the U.S.
Senate yesterday lulled, guys, and they were being hilarious about the debt
ceiling, which is hard to be hilarious about.

Here`s what happened. The White House has been pushing a plan to take
control of the debt ceiling away from Congress. That way Congress
couldn`t, you know, blow up the world economy for no good reason. It`s
like taking the really sharp knife covered in explosives away from a kid
who`s been having a lot of temper tantrums lately. It just kind of seems
like a good thing to do.

The White House calls it the McConnell plan because it`s based on an
idea that Senate Minority Leader Mitch McConnell proposed back in July
2011. But even though it is Mitch McConnell`s idea, even though he came up
with it, Mitch McConnell is not for it.

Mitch McConnell at this point does not support the McConnell plan at
all. And he didn`t think Democrats did either. And yesterday he wanted to
call their bluff.

Now, that is when C-Span 2 suddenly became amazing television.
Yesterday afternoon, Mitch McConnell asked the Senate to move to an
immediate vote on the McConnell plan. Vote on it now. He figured Harry
Reid would back down, to prove that even Democrats don`t like this idea.

But Reid did not back down. He doubled down. He said, yes, let`s
vote on the plan. But let`s move to an immediate up-or-down vote. No
filibuster, no 60-vote requirement, let`s see if it gets 51. And if so,
it`s passed.

At which point, McConnell, seemingly a little taken aback, kind of
filibustered his own bill, that he had just said we needed to vote on. He
said, no, if we`re not going to have a 60-vote threshold, there would be no
vote at all.

So, in the space of a few minutes, Mitch McConnell had moved to vote
on the plan, he had gotten his wish and then he launched a filibuster or a
60-vote challenge against a vote that he had asked for.

Democratic Senator Claire McCaskill was Senate president at the time.
Here was her reaction.

(BEGIN VIDEO CLIP)

SEN. CLAIRE MCCASKILL (D), MISSOURI: Is their objection to the
original request?

SEN. MITCH MCCONNELL (R-KY), MINORITY LEADER, Yes, I object.

MCCASKILL: Yes, objection is heard. I got whiplash.

(END VIDEO CLIP)

KLEIN: I got whiplash. That is the world`s greatest deliberative
body in action.

That is also the kind of thing people who don`t know how to see the
sailboat seeing in Washington right now. It is all games the two parties
are playing to prove to their base they are pure of ideological faith and
really committed to beating the other side to a bloody fight.

That`s what they have to do. It`s part of the whole dance. Their
base won`t trust them. They won`t buy the final deal if they don`t think
their party has fought as hard as they possibly can.

But if you watch these games closely, it is easy to get too depressed,
that the parties are by in turns (ph) angry, and disappointed and they are
petty and inane, and they are sorrowful and they are vengeful. But behind
all that, if you filter it out, if you just look at the offers on the table
and the counteroffers and in particular, if you look at the red lines that
are being proposed by John Boehner and President Obama, if you look at
these very closely, a deal is beginning to take shape.

Watch this. You remember during the presidential campaign what
President Obama used to say over and over again about tax rates? About
what his plan was for tax rates?

President Obama was crystal clear about what he wanted.

(BEGIN VIDEO CLIP)

BARACK OBAMA, PRESIDENT OF THE UNITED STATES: I have said that for
incomes over $250,000 a year that we should go back to the rates that we
had when Bill Clinton was president.

I want to reform the tax codes so that it`s simple, fair, and ask the
wealthiest households to pay higher taxes on incomes over $250,000. The
same rate we had when Bill Clinton was president.

We`ve got to ask you and me and the wealthiest among us to go back to
the Clinton rates for income above $250,000.

(END VIDEO CLIP)

KLEIN: The Clinton tax rates, we need to go back to the Clinton tax
rates. That is not a generic policy idea. That is really specific.

The Clinton tax rate for high income earners was 39.6 percent. That`s
what President Obama was calling for during the campaign. That`s still
what President Obama is calling for now.

But now when you ask him if that`s the red line, if it you ask if he
will accept anything else, he doesn`t really answer.

(BEGIN VIDEO CLIP)

CHUCK TODD, NBC CHIEF WH CORRESPONDENT: Tax rates. Are you – is
there no deal at the end of the year if tax rates for the top 2 percent
aren`t the Clinton tax rates, period? No ifs, ands or buts and any room on
negotiating on that specific aspect of the fiscal cliff.

OBAMA: With respect to the tax rates, I just want to emphasize, I am
open to new ideas. I`m not going to just slam the door in their face. I
want to hear – I want to hear ideas from everybody.

(END VIDEO CLIP)

KLEIN: That is not a no.

Here is the Treasury Secretary Tim Geithner, the top negotiator for
President Obama.

(BEGIN VIDEO CLIP)

TIMOTHY GEITHNER, TREASURY SECRETARY: There`s no agreement that
doesn`t involve the rates going up on the top 2 percent of wealthy.
Remember, it`s only 2 percent.

(END VIDEO CLIP)

KLEIN: Not necessarily going up to the Clinton era rates. Just going
up.

Today at a press conference at the Capitol, House Speaker John Boehner
got a question about this. And listen carefully to how he responded or
didn`t respond.

(BEGIN VIDEO CLIP)

REPORTER: Speaker, you did speak with the president earlier this
week. Can you characterize that call? I mean, did he call – did he have
any kind of counteroffer?

And also we understand that he just is making clear that it`s got to
be increasing rates for the wealthy or no deal. Are you willing to give a
little bit? Maybe just not all the way to 39.6?

REP. JOHN BOEHNER (R-OH), SPEAKER OF THE HOUSE: The phone call was
pleasant, but just more of the same. The conversations that the staff had
yesterday, just more of the same. It`s time for the president, if he`s
serious, to come back to us with a counteroffer.

(END VIDEO CLIP)

KLEIN: Again, not a no on the rates going up thing. John Boehner
didn`t answer the tax part of the question at all. He talked about the
phone call. It was pleasant. He didn`t say we did not allow tax rates to
go up at all.

So, you see the deal that`s becoming clear here. The one that`s
taking shape even as Boehner says they`re making no progress and
Republicans talk doomsday plan and Democrats roll their eyes. A lot of the
players I talked to think something like this is going to happen.

The final rates raise a bit, giving Democrats a win, but not all the
way back to 39.6 percent, giving Republicans a win. Maybe, they`ll be 37
percent. Maybe 37.5, maybe 38.

That won`t raise enough revenue so it will be combined with policy to
cap tax deductions for the rich, perhaps at $25,000 or $50,000, or along
the lines Republicans have been talking about. That won`t take effect
right away. It will be phased in. It will probably include an exemption
for charitable contributions.

The harder question is what Republicans get on the spending side of
that deal. But even that doesn`t seem to be such a mystery these days.
There are a lot of nips and talks to Medicare in particular. There`ll be
more cost sharing. There will be what`s called a unified deductible and
increases in provider payments.

And the headline Democratic concession is likely to be the Medicare
eligibility age rises from 65 to 67. Medicare eligibility age rises.

Democrats do not like that idea as House Minority Leader Nancy Pelosi
explained yesterday.

(BEGIN VIDEO CLIP)

REP. NANCY PELOSI (D), CALIFORNIA: First of all, show me the money.
I don`t even know why that is something that people think is going to
produce money. What are we going to do with people between 65 and 67?

Why is that – where is the money? Show me the money there. But it`s
not even the right thing to do, first and foremost.

But is it a trophy that the Republicans want? Is that the trophy they
want in order to do what is right to raise the rates for the wealthiest
people in our country?

(END VIDEO CLIP)

KLEIN: Let me say for the record I think Pelosi is right. I don`t
think raising Medicare eligibility age is a very good idea. And later on
the show, I am going to show you the money on it. I`m going to show you
exactly how it works. But for now, note what Pelosi did not do, she did
not rule out.

And if Republicans end up getting it, and remember, it is something
the Obama administration told John Boehner they were willing to trade away
back during those 2011 negotiations, if Republicans end up getting it, that
will feel like a big win for them. Enough perhaps to unlock the tax deal.

I`m not saying the final negotiation here will be easy. One thing
that`s a tough sticking point in negotiations is the debt ceiling, where we
began tonight, which the White House wants to get rid of forever. There`s
not been a lot of Republican movement on the forever deal.

So, I`m not saying they are not going to get to a deal by the
deadline. We could be here on Christmas. But don`t be fooled by the
posturing. There is a sailboat here and it is coming clearer everyday.

Joining us now is Peter Orszag, the former budget director for the
Obama administration`s Office of Management and Budget in 2009-2010, now,
vice chairman of global banking at Citigroup, a veteran of these
negotiations, a master of all things budget.

Peter, thank you so much for being here on a Friday night.

PETER ORSZAG, FORMER OMB DIRECTOR: Good to be with you.

KLEIN: Peter, you have been in a lot of these negotiations. You have
been in their rhythms and seen how they go. What is your take on where we
are right now?

ORSZAG: Well, I think as you pointed out, it`s still early. It`s
December 7th. And both sides would be complaining if there was an
agreement in place right now. But you can see the pieces coming together
as you laid out on the fiscal cliff, some increase in marginal tax rates
coupled with some kind of cutting back on tax expenditures.

I think the real concern is shifting or will shift from the fiscal
cliff to the debt limit. It`s not at all clear that the Republicans will
agree to including a debt limit increase in that kind of package. And if
they don`t, we may get past December 31st only to find ourselves with a big
problem in February or March.

KLEIN: Well, the Obama administration, the White House, has been
clear that they say they will not sign anything – even to get past
December 31st – that does not include a debt ceiling increase of some
sort.

So do you think they can hold firm on that if Republicans offer them a
package that doesn`t include the debt ceiling? Do you think they`ll be
able to not cave on that?

ORSZAG: This is where I think the tension is now arising, which is
even if you`ve got some agreement over the tax rates which will jam the
Republicans a bit, can you jam them on the debt limit also? I think the
concern will be an administration overstepping a little bit or overreaching
and trying to jam a debt limit increase, especially in the kinds are being
discussed now.

I`m all in favor of getting rid of the debt limit. It makes no sense
from a technical perspective, from a policy perspective. But it`s probably
a bridge too far to attempt that right now.

And so, the question really will become without any more significant
entitlement reform, I`d say at the least the kind of Medicare eligibility
age increase that you were discussing is a debt limit increase going to be
part of the package. And if not, will the administration win a pyrrhic
victory on marginal tax rates only to find itself in a harder position in
February with the debt limit still out there.

KLEIN: The other side of this is the question of whether or not
Speaker Boehner can actually deliver votes. I mean, the thing that a lot
of people worry about in private is that him and Obama will cut a deal sort
of in late December negotiations. But Boehner has already been making
tough moves with conservatives on his own caucus, kicking a couple of them
off of communities. And that when it comes down to it, he`s going to agree
to something with the president, and it is not going to be able to pass his
own conference.

Do you have any sense of what you think he`s able to do and not do at
this point?

ORSZAG: We come back – yes, we come back again to I think the
entitlement question. I think it`s going to be easier for the House
Republican Caucus to swallow some marginal tax rate increase and a debt
limit increase especially if they have something to show for it.

And the irony here is, I actually think, on a whole variety of issue,
the Democrats should be in favor of certain kinds of progressive
entitlement reforms. So, it`s not actually that big of a give. On Social
Security, as an example, Democrats have won for the time being on
privatization being completely off the table. I think there`s a strong
argument for trying to lock that in now as oppose to waiting and having
that potentially come back.

In addition, one of the big concerns here is doing too much fiscal
austerity too soon in 2013. The more you did in the form of Social
Security which can be phased in gradually over time, the lighter the load
imposed in 2013. That`s a good thing despite the news this morning from
the unemployment release. We still face a labor market that`s much too
weak.

KLEIN: So, let me then just ask you, do you think – do you think
they get this done that is at least two years or more by Christmas?

ORSZAG: I think that`s less than a 50 percent, including the debt
limit increase in more than two years, less than 50 percent at this point.

KLEIN: Less than 50 percent.

Peter Orszag, former director of the Office and Management and Budget,
now at Citigroup, thank you for your time. I wish your probability had
been higher.

ORSZAG: So do I.

KLEIN: Just when we were starting to think it might be a slow news
day, bam! The Supreme Court is going to take up same-sex marriage.
History is on the docket twice, coming up.

(COMMERCIAL BREAK)

KLEIN: In 1967, Supreme Court ruled unanimously that race cannot be
used as a basis to restrict marriage in the United States. This was a
famous case. You learned about it in high school. Loving versus Virginia.
The amazingly named Lovings were Richard and Mildred Loving.

And in 1958, they left Virginia and traveled to Washington, D.C. so
they could get married. When they returned to Virginia where interracial
marriage was against the law, they were sentenced to a year in prison for
getting married. When the judge in Virginia sentenced them to prison he
said, quote, “God created the races and placed them on separate continents.
The fact that he separated is so that he did not intend for the races to
mix.”

The Lovings appealed that decision and won at the Supreme Court. But
why did it take until 1967 for the Supreme Court to weigh in on interracial
marriage?

By 1954, 13 years earlier, the court had already ruled in cases
involving race and segregation and discrimination. Perhaps most famous in
Brown v. Board of Education which the court held that “separate but equal”
was unconstitutional.

So, again, why wait until 1967 to hear the case about interracial
marriage?

Here are all of the states that had laws on the books in 1947 banning
interracial marriage. Most of them, right? By 1967 only 16 states still
had the laws on the books. In the decades between 1947 and 1967, the years
between – the years the Supreme Court was staying mum on the issue, most
states decided on their own, that it was unconstitutional to ban
interracial marriage, or at least unwise.

The court was following on their heels, following the heels of public
opinion.

This is a big debate in the legal world. Is the Supreme Court
influenced by American public opinion? These are nine people who could
completely ignore the will of the people. They are appointed for life, no
elections, no accountability. They can totally ignore us if they so
choose.

But many legal experts say that is not how it works. Supreme Court
justices are, in fact, swayed by what the people think about issues.
Today, the Supreme Court announced it would hear two cases involving same-
sex marriage next year. That is huge.

They said they would hear the Prop 8 case out of California. Prop 8
is the California ballot proposition which amended the California
Constitution to define marriage between a man and a woman. The court will
weigh, some time this year, probably in June, whether that amendment is
unconstitutional.

But the court also said it would hear a challenge to the Defense of
Marriage Act, the 1996 law passed under President Clinton to define
marriage only between a man and a woman, to the purpose of federal law.

So, the question is: why now? Why did the Supreme Court choose this
moment?

Well, nine states and Washington, D.C. all recognize same-sex marriage
now. That doesn`t seem like very many, but it`s happening quickly. Three
of those states, Maryland, Maine, and Washington, in those, people voted to
legalize marriage just in November, first time voters have ever done so.

And there`s a big public opinion trend here. Since `04, “The
Washington Post”/ABC News polls have been asking people should it be legal
or illegal for gay and lesbian couples to get married. In 2004, 59 percent
of people said they thought it should be against the law. In 2012, it was
almost the opposite, 53 percent favor making it legal.

Pew has been asking the question since 1996, I`m sorry, when 65
percent of people were against same-sex marriage. By October of this year,
49 percent were for marriage equality, while 40 percent opposed it.

One more set of numbers, even more telling. Gallup released its most
recent polling on same sex marriage this week. Fifty-three percent of
people polled support legalizing same-sex marriage, which ties a previous
record high.

But look inside the poll. Among young, people 18 to 29-year-olds, 73
percent say they think same-sex marriage should be recognized, 73 percent.

So, here`s the question. The court is choosing to rule now. Are the
justices looking at the trends and saying we need to use our power, our
installation from public opinion to put a stop to this, or are they looking
at the trends and seeing a chance to join history, to become the court that
said gay marriage is protected under the Constitution?

Joining us now is Kenji Yoshino. He is Chief Justice Earl Warren
professor at constitutional law at NYU Law School.

Kenji, thank you for being here. That is a great title.

KENJI YOSHINO, NYU LAW SCHOOL: Thank you, Ezra.

KLEIN: My question for you is simple. It`s two words: why now?

YOSHINO: Well, in part, because the court is a passive institution.
It can`t reach out and grab cases. But I think that there`s an additional
layer to your question, which is why didn`t the court say we`re not going
to review this case?

One of the cases that we didn`t look at in your excellent introduction
is a 1956 case called (INAUDIBLE). This is right after Brown v. Board of
Education when they are handing out these orders extending the principle at
public accommodations. But it has a marriage case come up before it and
completely on persuasive ground gets rid of it and says this is too soon.
And so it sat until 1967, 11 years later to take it up.

So, many of us thought this is exactly what`s going to happen with the
Prop 8 case. I think the DOMA case is slightly different for reasons that
we can go into. But I think many of us thought the Prop 8 case it`s going
to deny. It`s going to go back. Same sex marriage is going to be legal in
California but nowhere else and then the court is going to wait another 10
years and then wash out the outliers as it did in the interracial marriage
context.

KLEIN: So what are the implications – the differing implications of
how they could rule in the two cases? What different parts of the gay
marriage question could they resolve?

YOSHINO: Right. So, the DOMA case is a much more easy case, from my
perspective. It`s a much more parsimonious challenge in the sense that all
it does is to return Congress to its original position of following
whatever states say the definition of marriage are. So, in some ways, it
was very ingeniously crafted because it`s a kind of movement.
Conservatives in the court tend to be very pro-state`s rights.

KLEIN: But it`s a states rights solution.

YOSHINO: Exactly. And the liberals tend to be very pro-gay. So,
essentially, when you`re arguing towards the middle, like Justice Kennedy,
then you feel like Justice Kennedy`s favorite things, states rights on the
one hand, gay rights in the other. That`s clearly a fifth vote for this
case. We assume, right?

So I actually – I think everyone imagined, especially since federal
appellate court had struck down a congressional statute, that almost
invariably leads to the Supreme Court to review the case. Almost everyone
thought they would take the DOMA case. I think they are going to do the
right thing on the DOMA case and strike it down.

KLEIN: OK. So –

YOSHINO: The Perry case is much more complicated, because the DOMA
case doesn`t affect any state decisions as to whether or not to allow same
sex marriage. Whereas the Perry case, the outcome could be –

KLEIN: Again, the Perry case is the Prop 8 case in California.

YOSHINO: Exactly. Thank you for helping me out there.

The case says there`s this definition passed by a ballot initiative in
2008 that says that marriage is between one man and one woman. If the
Supreme Court goes really broad on that and says there`s a fundamental
right for same-sex couples to marry, that could flip the remaining states
41 states that don`t have same sex marriage to require them to have same
sex marriage.

I don`t think that`s going to happen, Ezra. I think that there are
many ways in between zero and 50, right, whether they expect solution. So,
for example, the court could look at this and say there are a bunch of
states that say we`re going to give you the rights and benefits of
marriage, but we`re going to withhold the word marriage. And that`s all
we`re going to withhold.

The court can look and say, all you`re worried about is brand, and
what you`re saying is that if you let gays into marriage, that`s going to
diminish the brand. That`s animus, we`re going to strike that down. We`re
going to add those states to the ledger of the nine states that already
allow same sex marriage bring the total to 17.

And somewhere down the line, we`ll do the Loving vs. Virginia move of
washing out the outliers, which you sat in 1967, 16 states. Right now, it
would be washing out 41 states, which is a much bigger proposition.

KLEIN: Right. So very quickly before we go, today is a good day for
supporters of gay marriage. That`s the bottom line? Or in your –

YOSHINO: I think it`s a great day. I think it`s a great day because
in the Perry case, you know, there`s no question it`s a great in respect to
DOMA because I think people are confident that will come out in the right
way if you`re on the pro-same sex marriage side.

For the Perry case, I think it`s a great day even though there might
be skeptics on that issue because in that case, there`s a beautiful record,
there`s a trial in this case. Whenever there`s a trial, the pro-gay side
wins. It`s almost a per se rule.

So, in very red states like Arkansas and, you know, relatively red
state like Florida, the gay rights activists have won and very blue states
without a trial, we have lost, in states like New York and Maryland. So
because there was a trial and a 3,000-page record the Supreme Court will
look at, I think the Perry case is actually a sleeper winner.

KLEIN: Interesting. NYU`s Kenji Yoshino, thank you so much for being
here tonight.

YOSHINO: Thanks so much for having me.

KLEIN: If you are former President Bill Clinton, you have a global
initiative named after you. If you`re Edwin Hubble, there`s an awesome
telescope named after you. If you`re George Foreman, five sons named after
you and grills.

I`m Ezra Klein and the only thing named after me is the challenge
we`ve sort of invented here when I explain a real wonky stuff quickly. I`m
OK with that. Tonight`s Ezra Klein challenge is next.

(COMMERCIAL BREAK)

KLEIN: When I want to talk about something so geeky that I`m pushing
the limits of what even THE RACHEL MADDOW SHOW staff of geeks will
tolerate, the producers here get me to do it in two minutes or less.

Tonight`s challenge comes in something I mentioned earlier, the
Medicare eligibility age. Sexy topic right? Try to control yourself,
Rachel Maddow`s audience.

Now, despite the fact it`s incredibly unpopular, Republicans really
want to make cuts in Medicare and specifically, they want to raise the
eligibility age by two years, from 65 to 67. That is also super unpopular.
But the White House is open to it. They are open to it in 2011, in the
Boehner/Obama talks. They are open to it now.

What`s weird about this policy is it`s always presented as the height
of fiscal responsibility even though it is kind of fiscally irresponsible,
which brings us to tonight`s challenge, why raising the Medicare
eligibility age does not actually save you very much money and is probably
a bad policy idea in under two minutes.

OK. Do we have the clock? Let`s do it.

The argument for cutting 65 and 67-year-olds out of Medicare in a
deficit talk is simple. It saves money, right? The Kaiser Family
Foundation estimates that when it`s all said and done, the government would
save $5.7 billion in the first year of that plan.

But those 65 and 66-year-olds, they don`t disappear. They`re still
going to be here and they`re going to even get sick sometimes, which means
the savings we`d see by kicking them off the Medicare rolls, they pop back
up elsewhere in the economy. It`s not pure savings. It`s a cost shift.

First and foremost, of course, you`re going to see increased costs for
seniors who will have to find another health insurer, since Medicare is
huge and it uses its bargaining power to pay less by quite a bit. The
seniors turning to private insurance will have to pay more from the same
coverage, about $3.7 billion more in the first year of the policy.

For those 65 and 66-year-olds who are eligible for Medicaid, states
will have to pick up some of that tab, so nearly three quarters of a
billion dollars will move to the states, we think.

Then there are the employers. Many of the newly Medicare ineligible
will turn to their employers. That will increase the health care costs of
American companies by $5.4 billion.

Some of the seniors, of course, will turn to the Affordable Care Act,
raising premiums for the younger people in the new insurance exchanges.

Those left in Medicare will pay a higher premium, too, because the
younger and healthier seniors have left, which means the average premiums
go up for those who are older and sicker. All that will cost about $2.5
billion.

So, in order to save the federal government $5.7 billion, this plan to
raise Medicare eligibility would cost twice that much across the economy.

Done. Stop the clock.

So that is the explanation in under two minutes as promised.

And now, you might wonder, though, given all that, why are Democrats
even considering a policy so fiscally pointless?

Well, the reason this plan doesn`t save much money is the same reason
they are considering it. It won`t hurt people all that much, at least
compared to the alternatives on the table.

Jonathan Chait made this point at “New York Magazine”, calling the
Medicare eligibility proposal a sensible bone to throw to the right because
it has weirdly disproportioned symbolic power, both among Republicans in
Congress and establishmentarian fiscal skulls. Meager and inefficient
though the savings may be, they pack a lot of punch in delivering
Republican votes. That`s what Nancy Pelosi meant when she called it a
trophy Republicans want.

Republicans see this as a big win for them. Big. And that`s kind of
the White House`s quiet argument. It`s a terrible policy, but because
Obamacare and employers and others are there to catch a lot of these
people, it might get more Republican votes while doing less harm to seniors
than the alternatives.

(COMMERCIAL BREAK)

KLEIN: There is in life this thing known as reality. Reality is
real. That is kind of its key feature. It doesn`t care whether or not you
like it, and if you go against it, you tend to lose.

For instance, when your political party decides to ignore warnings
about the changing demographics in the country and you decide to go against
the reality that Latino voters are the fastest growing bloc, or that women
are voting in really big numbers, that African-Americans are voting in big
numbers, and you focus instead on policies that Latinos and women and
African-Americans find insulting, backwards and cruel because you hope they
won`t show up to the polls in big numbers, you end up with this reality –
Barack Obama, two-term president.

Republicans tried to cross reality in the last election and reality
won. The demographics of the country, they are changing. We`re facing
another set of realities about our changing nation. Since 1950, the
federal government has taken in taxes or revenue that equals about 18
percent of the overall economy. We did the math. It`s 17.8 percent to be
exact.

That`s become something of a magic number in politics on both sides of
the aisle. You tell Orrin Hatch, the ranking Republican on Senate Finance
Committee, loves the 18 percent. If we keep all the Bush tax cuts, we
stick at that magic number. According to Orrin Hatch, that means, quote,
“taxes would still be high enough compared to recent history.” Just
because that`s high they were in the past.

Across the political spectrum, consider Warren Buffett, a supporter of
Democrats and higher taxes for the rich. Last month, Mr. Buffett wrote on
“The New York Times”, quote, “Our government`s goal should be to bring in
18.5 percent of GDP and spend about 21 percent of GDP.”

Why? He doesn`t say. He just says those are levels, quote, “that
have attained over extended periods in the past.”

Well, then, permit me a dissent from the Oracle of Omaha here. The
average of our past revenue is not sufficient to sustain our future. In
fact, it wasn`t even enough to support our past. Only three times in the
past 50 years has the 18 percent been enough to balance the budget. And
all those times were in the `60s.

The only recent balancing came during the Clinton era when growth was
strong in revenue range, from 19.5 percent of the overall economy to 20.6
percent, by bumping along with magic average of 18 percent, we have built
the national debt that now dominates our political discussion and it is
going to get worse if we stay there.

The future debt we`re always talking and worrying about is driven by
two things: health care and old people. And the coming years are going to
have more of both. Today, the elderly make up 13 percent of the U.S.
population. By 2050, they are expected to be 20 percent. That means,
you`ll need to spend a lot more on Social Security and Medicare.

And meanwhile, the development of new miracle treatments that we hope
will keep happening and that will push the cost even higher. The future
turns out to be expensive. That`s simply the reality of it.

And opposing tax increases doesn`t change that reality. There`s
nothing in Grover Norquist`s pledge that stops the aging process. If there
was, I would take it.

So there`s no way that the tax receipts of the 1960s will support the
demographics of America in the 2020s, or the 2030s. Anyone who says
otherwise is not taking the reality seriously.

Joining us now is a man who always takes reality seriously, the great
Chris Hayes.

CHRIS HAYES, MSNBC HOST: Religiously.

(LAUGHTER)

KLEIN: So one thing I always think is true in our political
discussions is we don`t like to face up to big changes coming at us. We
like to use them as evidence for whatever policies we`ve always supported
are adapting. But particularly, the aging of the society –

HAYES: Yes.

KLEIN: – I don`t think we have come close to thinking about what
that will mean for our economy or the government or any of it.

HAYES: That`s right. The only discussion we have is we`re getting
older and so the entitlement programs will go bankrupt, so we have to make
cuts.

But, you know, when you think about like, what does a mature society
value and how does it want to spend its marginal dollar. Think about as an
individual, how you want to spend your marginal dollar at 25 and how you
want to spend it at 75. At 25, maybe you want to buy an extra shot or get
a video game system or –

KLEIN: I feel like you`re making – you`re making the 25-year-olds
look a little trivial here.

HAYES: Or maybe another book let`s say. But at 75, if someone says
you can spend marginal dollar to get an extra three months of life, like
people are going to buy that, right? And as we mature as a society, as we
get older, like that – those choices are on a social level, we`re just
going to make more of them and it`s going to be more expensive and we`re
all going to have to pay more for it. There`s no way around that.

KLEIN: And one of the ironies I always take in this conversation is
that the fundamental challenge of an aging society is you have more old
people and fewer young working people.

HAYES: Right.

KLEIN: And work rates obviously change slowly, and lately they`ve
been dropping, we actually do have a way to change it if we wanted to. We
have immigration. A lot of people would like to come here, but it is a
same coalition that doesn`t like increasing taxes to pay for your aging
society that also doesn`t like letting anybody in to work for and pay for
your aging society. And something is going to have to give in a very big
way.

HAYES: Yes. And I think actually, the tension on the immigration
side is going to give first for exactly that reason, right? Yes, I do,
because I think actually, the hydraulics of this work out that the pressure
is the least there.

You know, the bizarre thing about the modern Republican Party and you
have written about this and I talked about this is the fact that it is
essentially is this kind of rear guard action to defend at all costs the
social democratic state that older Americans that vote for Republicans live
in, right, and worries about any incursions from people outside there. And
if ultimately the fact is they are choosing between more liberal
immigration policy and cutting into those social democratic benefits that
older Americans get, I think you can see people actually choose the
immigration pathway.

KLEIN: The other thing I worry about is the interaction of the
pledging Republicans and what will happen here, because one thing that is
true is that taxes will have to go up probably by more than President Obama
is talking about now and you can`t – it isn`t a good idea to do all that
on the income tax code. When you hit income taxes to a certain level, it
gets really inefficient.

HAYES: Right.

KLEIN: But Grover Norquist, if you talk to him, is very smart on
this. He says, the reason I won`t allow consumption tax or carbon tax is
because even if it`s more efficient, that makes it easier to raise taxes.
And I worry the compromise here is a tax code that gets high enough it`s
hurting the country because Republicans won`t allow real tax reform that
would support it.

HAYES: Right. And the other problem – I totally agree. And the
other problem is you end up in a perverse situation where we on the books
have a progressive system, even compared to other OECD countries. And we
pay much less in taxes overall and we have much stingier-defined public
goods that we provision through the state, right?

The point is that the most successful social welfare states are one
where there`s this universal pay in and universal benefit, right? And the
way we`re going with this increasing inequality is talking about means
testing and redistribution, which is a way from a model of universal pay in
and universal benefit, that is the thing that is long term sustainable.

KLEIN: Right.

Chris Hayes, host of “UP WITH CHRIS HAYES”, which is going to be on
tomorrow morning, and we should be up for – thank you for being here
tonight.

HAYES: Great to be here.

KLEIN: One of the coolest things human beings have ever seen
celebrates a big birthday today. It also happens to be one of the coolest
mysteries never solve. It`s sort of a best new moment of geek and it is
coming up.

(COMMERCIAL BREAK)

KLEIN: In 1997, Khaled Meshaal was the Jordanian bureau chief of
Hamas, the Palestinian group which is both the elected governing entity in
the Gaza strip and considered by many, including the United States, to be a
terrorist organization.

At the time, Khaled Meshaal was living in exile in Jordan, and from
there, he allegedly orchestrated a number of attacks on Israel. Israel`s
prime minister was Benjamin Netanyahu and that year in 1997, Mr. Netanyahu
green lit a plan for Israel`s intelligence agency to kill Mr. Meshaal. It
did not go well.

(BEGIN VIDEO CLIP)

REPORTER: As Khaled Meshaal arrived at work, two suspicious men
approached him.

MESHAAL KHALED, HAMAS LEADER (through translator): I was just
entering my office when I heard a sound. Then I felt an electric shock
throughout my body.

REPORTER: His body guard chased the two men up the street in Jordan`s
capital Amman, caught them and beat them. The two insisted they were
Canadian tourists out shopping. Within hours, Meshaal, a leader of the
terror group Hamas was in the hospital vomiting, dizzy and on a respirator
to help him breathe.

The two men in the Jordanian jail were, in effect, hitman from Mossad,
Israel`s legendary secret service. Their mission apparently to poison the
Hamas leader in retaliation for suicide bombings inside Israel.

The failed assassination, a humiliating blunder for Israel.

UNIDENTIFIED MALE: It was really a disaster. It was as if it was
part of a bad Hollywood movie.

REPORTER: Jordan`s King Hussein was outrage. The hit was in his
capital and he`s Israel`s strongest Arab ally.

Hussein made two deals. He would return the two captured agents if
first Israel would provide an antidote for the poison and second, Israel
had to free this man from jail, Sheik Ahmed Yassin, the sick but still
powerful spiritual leader of Hamas. Today, he got a hero`s welcome in
Gaza. Also free, 22 Hamas fighters.

The incident has proved a disaster.

(END VIDEO CLIP)

KLEIN: The failed assassination was indeed a disaster for Israel.
The guy they were trying to kill did not die. Israeli agents were
captured. Israel had to provide the antidote to save the life of the guy
they were trying to kill, and they had to release almost two dozen
Palestinians from jail in order to get their guys back from Jordan.

There is pressure on Prime Minister Netanyahu to resign. Fifteen
years later, Netanyahu is again the prime minister.

And Khaled Meshaal is now the head of Hamas. He`s lived in exile the
whole time. He was born in the West Bank and he left when he was a kid,
but he has never, ever been to Gaza, which is where Hamas is based until
today. Today, the Hamas leader visited Gaza for the very first time in his
entire life. He was there to celebrate the group`s 25th anniversary.
There will be a huge rally tomorrow.

Also on the agenda, a visit to the family of one of the men released
from an Israeli prison 15 years ago in the wake of that failed
assassination attempt. That guy, one released from prison by Israel, he
was successfully assassinated in 2004. Khaled Meshaal visited his family
home today.

But the most important thing to know here is how the head of Hamas got
into Gaza. He was allowed to enter the territory through Egypt. Egypt`s
former President Hosni Mubarak on the left never would have allowed it. He
hated Hamas.

Egypt`s current President Mohamed Morsi does not. He is a member of
the Muslim Brotherhood, which is a cousin of Hamas. And so, the head of
Hamas the first time ever was allowed to travel to the Gaza Strip. That`s
one example of the tectonic shift in politics going on in this part of the
world going on right now.

Here is another. This is Cairo. Not during the revolution that
brought Morsi to power, but now. This is Cairo right now. Tens of
thousands of protesters have been out there for about two weeks in the
famed Tahrir Square and near the presidential palace.

They`re very upset that their newly elected democratic President Morsi
is doing things that they not so democratic. He is specifically trying to
make it so his decisions are not subject to judicial review. At least six
civilians have been killed and hundreds injured in the violence.

President Obama called his Egyptian counterpart yesterday to express
concern about the situation that seems to be spinning out of control. He
urged President Morsi to meet with and negotiate with the opposition.

And then there is Syria, where NBC News reports the Assad regime is
preparing chemical weapons that can be loaded on the missiles. And human
rights groups say more than 40,000 people have been killed in the last 21
months.

We here in America are really intent right now on how we will rewrite
our tax code. But if matters in Egypt and Syria or Israel and the
Palestinian territories which are already getting pretty deadly and tragic
and chaotic – if they get worse, the crisis about high end marginal tax
cuts and budget deficits will begin to look a lot less like a crisis in
comparison.

(COMMERCIAL BREAK)

KLEIN: You probably saw a really cool image, a nighttime view of the
Earth from space. NASA was able to show us this image, thanks to a new
satellite equipped with something called visible infrared radiometer suite.

But this image of the entire globe of earth from space is not what you
might think it is. We do not have a camera far enough away from Earth to
get an image of the whole thing. This image is a composite, knitted
together from data taken by the satellite as it made several passes around
the Earth.

Lots of the cool pictures you see like of hurricanes from space are
actually composites. Anything close enough to the Earth to be held by its
gravitational pull is also too close to get a whole Earth picture.

For perspective, this is what the Earth looks like from the
International Space Station. You can`t really see the whole thing at once.
Only a couple dozen earthlings have ever been far enough from the Earth to
see the whole thing. Like the crew of Apollo 8, who took this picture
commonly known as earth rise from the window of the craft as they orbited
the moon in 1968.

Unfortunately, nearly half the earth was in shadow. An unmanned
Soviet spacecraft called Zond 7 got this shot during a lunar flyby in 1969.
I guess you would call that a gibbous Earth, not quite full, but close.

But 40 years ago today, three people were able to get this amazing
view of the earth. Fully lit by the sun. It is a shot you have probably
seen so often, you don`t think how amazing it really is. It was nicknamed
the Blue Marble and it was taken by one of the astronauts on board the last
Apollo mission to the moon, Apollo 17. Apollo 17 launched 40 years ago
today, December 7th, 1972.

It was a night launch, aiming for Taurus-Littrow valley. The
astronauts Gene Cernan, Harrison Jack Schmitt and Ron Evans aboard. Apollo
17 launched at night, and when they landed three days later, the sun was
behind them. And so that particular launch trajectory put a fully formed
beautifully lit Earth in the window of the command module at a time when
the astronauts really should have been too busy to look at it.

Here is how Al Rainer, who co-wrote the movie “Apollo 13”, describes
what happened. Quote, “At five hours and a few minutes into the flight of
Apollo 17, one of the crewmen looked out the window. What he saw inspired
him to grab the only camera that wasn`t stowed and snap a picture. But
whoever did it said nothing on the radio or to their crewmates about it.

It is possible they did it instinctively, hardly ever thinking about
it because none of them thought to mention it for weeks. Rainer doesn`t
say which of the three took the picture partly because NASA gives all three
of them credit for it, and partly because none of them were supposed to be
taking pictures right then.

Today, NBC veteran space correspondent Jay Barbree got Gene Cernan on
the phone for us. Gene told him that the astronauts don`t even know who
took the photo because they were passing the camera back and forth between
the three of them. That mystery turns 40 years old today, 40 years old.
And it may never be solved.

But next time you see a cool picture of the Earth from space, don`t
take it for granted. Don`t just assume that kind of thing is easy to do,
just jump up in a satellite. Take a minute to savor how freaking
unbelievable it is they were ever able to get a shot like that at all.

That does it for us tonight. Rachel will be back here Monday. Don`t
forget, you can check out my work at the “Washington Post” at wonkblog.com,
or follow me on Twitter, Twitter.com/EzraKlein and on Facebook,
Facebook.com/EzraKlein.

Now it is time for “THE LAST WORD”. Have a great night.

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

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