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The Situation Room

Congress Works on Debt Deal; Interview With Congressman Kevin McCarthy

Aired November 26, 2012 - 18:00   ET

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

WOLF BLITZER, CNN ANCHOR: Republicans contemplating tax hikes, Democrats weighing entitlement cuts, positions largely unthinkable not all that long ago. They're now taking shape as the country edges toward the so-called fiscal cliff.

With the new year, severe tax increases and severe spending cuts will automatically take effect unless Congress and the White House can reach a debt reduction agreement and there are signs each party's sacred cows may be up for slaughter.

(BEGIN VIDEO CLIP)

BLITZER: I want to pick your brain on how far you're willing to go in that area as far as Medicare cuts, Social Security, raising the retirement age, along those lines. All of that is on the table, right?

ALAN KRUEGER, CHAIRMAN, WHITE HOUSE COUNCIL OF ECONOMIC ADVISERS: You know, the president put forward a balanced approach, one that has a balance between raising revenues on the highest income earners and cutting spending. We are in a situation where we need to consider all kinds of onyxes.

(END VIDEO CLIP)

BLITZER: Kate Bolduan is here. She's got more on what's going on. Kate, what is going on?

KATE BOLDUAN, CNN ANCHOR: You know, there was a break last week for Thanksgiving. But talks were supposed to be continuing in these ongoing negotiations.

However, lawmakers are arriving back in town with no whisper of an imminent breakthrough at the moment to avoid this looming series of tax increases and spending cuts that could seriously damage the economy, but the air of compromise among some notable Republicans is definitely grabbing attention.

(BEGIN VIDEOTAPE)

BOLDUAN (voice-over): The Republicans' comments quickly caught fire.

SEN. LINDSEY GRAHAM (R), SOUTH CAROLINA: I will violate the pledge, long story short, for the good of the country, only if Democrats will do entitlement reform.

REP. PETER KING (R), NEW YORK: A pledge you signed 20 years ago, 18 years ago is for that Congress. The world has changed and the economic situation is different.

SEN. BOB CORKER (R), TENNESSEE: I'm not obligated on the pledge. I made Tennesseans aware, I was just elected, that the only thing I'm monitoring is the oath that I take when I serve when I'm sworn in this January.

BOLDUAN: GOP lawmakers bluntly stating to avert the fiscal cliff, they're ready to break from Grover Norquist and the pledge he's got most Republicans to sign to never raise taxes. Norquist wasted no time hitting back on CNN's "STARTING POINT."

GROVER NORQUIST, PRESIDENT, AMERICANS FOR TAX REFORM: It doesn't pass the laugh test. That's an odd position. If you want to go to your voters and say, I promised you this and I'm breaking that problem, you can have that conversation with them. But you don't have an argument with me. You have made a commitment to your voters.

BOLDUAN: The question, will more Republicans rebel against the pledge? Republican and Democratic aides tell CNN despite the compromising talk it won't have much impact at all on the fiscal cliff negotiations.

There's little evidence of progress from staff level talks over the Thanksgiving break and no hints from Senate leaders just back in town.

SEN. HARRY REID (D-NV), MAJORITY LEADER: The Senate has spoken and President Obama has spoken. He's promised he will not sign any bill that mortgages our future to pay for handouts to the wealthiest 2 percent of Americans. I only hope House Republicans have been listening.

SEN. MITCH MCCONNELL (R-KY), MINORITY LEADER: We have been responsible even as we have remained firm on this point, no tax increases now for promised spending cuts that won't materialize later. The American people have seen that game before and they won't be fooled again.

BOLDUAN: Over at the White House, the talk of breaking the no tax increase pledge got a positive response.

JAY CARNEY, WHITE HOUSE PRESS SECRETARY: Some of the comments you mentioned are welcome and they represent what we hope is a difference in tone and approach to these problems.

(END VIDEOTAPE)

BOLDUAN: Now, bottom line, talks continue. The president called both Speaker Boehner and Senator Reid over the weekend. As one Republican aide put it the fact they're still talking is progress when it comes to Washington. A Democratic aide, though, saying they don't have staffs huddling in a conference room going over spreadsheets, which is where they need to get to to strike a deal. At this stage, they're doing more dancing.

BLITZER: Joining us now, Kevin McCarthy. He's the majority whip, the number three Republican leader in the House of Representatives.

Thanks very much for coming in.

REP. KEVIN MCCARTHY (R-CA), MAJORITY WHIP: Thanks for having me.

BLITZER: Are you ready to jump on that bandwagon and violate that Grover Norquist pledge?

MCCARTHY: I think what the American people want, they want to see the problem solved.

And what we have, we spend more than a trillion dollars than bring in every year, so we got to solve that problem. We have a weak economy. We borrow 8 percent of our GDP for less than 2 percent growth. So, what we need is overall tax reform. Now, the president says he wants a balanced approach. He wants revenues, plus he wants spending cuts. The speaker's been down there. He says there is a way for revenues. Not to raise the rates, because that harms the economy and small business, but close special interest loopholes to get the revenue, but also what the president needs to do, show us where those cuts are. Show us where we can cut back on government growth to have that balanced approach.

BLITZER: Because he said he's ready for some entitlement cuts, cuts in Medicare, cuts in Medicaid, some reforms that would effectively result in some cuts, at least cuts in the rate of growth, if you will. But what I hear you saying is that you're ready for increased tax revenue, but not through raising the rate for the upper income, for the highest income bracket.

MCCARTHY: Well, what you find is when you raise rates, I think most economists will tell you, you harm the economy. The economy's weak. Remember, two years ago, when the Democrats controlled all, we were at the same point.

BLITZER: But if you raise rates from let's say 35 percent to 39.6 percent, which is what it was during the Clinton administration, for those families earning more than $250,000 a year, those families did -- those small businesses did quite well during the years of the Clinton administration, when the rate was 39.6. Why not go back to that?

MCCARTHY: The economy was stronger then.

Remember, two years ago when the Democrats controlled all? What did the president say? President Obama who had Nancy Pelosi as speaker then and Reid said don't raise the rates in a down economy. It hurts it. The president now says, now, too, he's looking for that revenue.

BLITZER: The economy is a little stronger now than it was two years ago. MCCARTHY: I don't know if you have been out there.

(CROSSTALK)

BLITZER: Take a look at today.

(CROSSTALK)

MCCARTHY: We have seen a lot of people underemployed, out of employed. You see half of those college students coming out, a lot of them can't find a job. We need a much stronger recovery.

We're at our lowest point of new startups in 17 years for small business and that's the greatest growth to the economy. So, when you look to the future, we are in a weak position.

BLITZER: What about raising it from 35 to 36 or 37 percent, not all the way up to 39.6 percent?

MCCARTHY: You raise that. So what does that get you, $31 billion for the next year?

BLITZER: Well, a billion here and there, after a while, you're talking real money.

MCCARTHY: What you really want to do is sit down and find a place that you can control government spending and raise more revenue. If the goal is to raise more revenue, what is the best way to do that at the same time protecting the economy? If you're able to gain more revenue by closing special loopholes and limiting them and keeping the rate down so you have better job growth, isn't that a better outcome? And that's what we should be talking about.

BLITZER: The president says -- and he makes this point repeatedly, the White House put out a whole report on it today -- you know what? The 98 percent who make under $250,000 a year, just let them continue to have the same tax rates. Don't make their tax rates go up at the end of the year. Take them out of this negotiation. Renew the tax -- make sure they keep that rate that they have right now.

Why not do that?

MCCARTHY: Well, the goal is to solve the problem. That doesn't solve the problem at all.

(CROSSTALK)

BLITZER: But at least you would remove 98 percent of the middle- class families. They don't have to worry about it.

MCCARTHY: But you do nothing about the growth of government that that 98 percent is still going to be worried about the economy we have, the debt that we have. Let's solve this problem once and for all.

(CROSSTALK)

BLITZER: Can you do that in three weeks?

MCCARTHY: Look, I think what we can do in three weeks is set up where we reform some of the government spending, we bring more revenue in.

That's what Republicans are putting on the table that the president asked for and the president would now say he wanted, what, two-and-a-half cuts for every one dollar, show where those cuts are and then set a framework so you have overall tax reform next year, where the committees can work on it. Then you're going to get a robust growth of government.

BLITZER: We do a two-part system.

MCCARTHY: Yes.

(CROSSTALK)

BLITZER: You do what you can do.

MCCARTHY: You can't solve all the problems in three weeks.

BLITZER: In the next three weeks, four weeks, do you include raising the debt ceiling? Because you know that is going to come up in February or March. They're going to have to raise the debt ceiling. Do you make that as part of the deal now?

MCCARTHY: I think that's too much at this time right now.

(CROSSTALK)

BLITZER: Because you're just going to have another battle in February or March if you don't include it now.

MCCARTHY: You can set a framework up where you can deal with all those issues.

You said up where you're going to have overall tax reform. You make cuts in government. You can bring more revenue in. You put us on a path to growth while at the same time protecting small business and get this economy moving again. When more people working, more revenue are coming in.

BLITZER: The president says 97 percent of all small businesses would be exempt from any tax increase if you pass the legislation the Senate passed. He would sign it into law.

MCCARTHY: Most accountants will tell you the majority of small businesses run as an S Corporation. So, what you would do is you would raise the rate over 43 percent based upon what the other tax coming in with Obamacare.

Small business is at its lowest percent in 17 years of new startups. Small business creates more jobs than large corporations. So if you look towards the future, we are at a weaker point. So you don't want to harm more of small business. So, let's sit at the table. Find places you close those special loopholes.

Bring the president the more revenues that he asked for and Republicans have put that on the table now, while keeping an economy able to grow.

BLITZER: What do you think about this idea Lindsey Graham -- pitched it over the weekend -- of capping deductions at $30,000 or $40,000 a year, whether it's charitable contributions, home mortgage deductions? And he says you could raise a trillion dollars.

MCCARTHY: Well, those are different options that all should be on the table you can talk about and you would gain revenue that way than raising the tax rates.

But you got to sit at a table and start talking about it.

(CROSSTALK)

BLITZER: Are you sitting at that table now? Have those negotiations started really in earnest? Because the clock is ticking.

MCCARTHY: I know the speaker has started from the very beginning after the election. He's been down at the White House, he's met with the president. I know they talked over the weekend as well.

But the one thing you have to remember here, you can't solve this problem just by more revenue. We're going to have to control the spending of government. And that's why the president even admits he needs two-and-a-half times as much as you get of revenue.

That's what we need to start talking about. The president has offered nothing. We have three weeks to go.

(CROSSTALK)

BLITZER: He's offered nothing?

MCCARTHY: I haven't seen anything though yet. Have you heard him talk about it? I know we have talked a...

(CROSSTALK)

BLITZER: You're talking about Medicaid cuts or Medicare cuts, entitlement spending.

MCCARTHY: There's loopholes in there that you can limit from all different prospects.

But the thing you can find is we talked a lot about that revenue side. This whole conversation has been more revenue than it has about where can we find the government cuts. And we should spend the same amount of time on that as well. That brings compromise. That brings a solution, but more importantly that solves the problem.

BLITZER: Do you want to raise the eligibility for from Medicare 65 to 67?

MCCARTHY: There's all sorts of things that could be on the table. That's all worth discussing and I think the American people want to see -- at the end of the day, you want a solution, not to continue...

(CROSSTALK)

BLITZER: Will there be a deal before December 31?

MCCARTHY: If you're looking for Republicans, we want a deal and that's why we came to the table first.

BLITZER: Kevin McCarthy is the majority whip in the House of Representatives.

Thanks for coming in.

MCCARTHY: Thanks for having me.

BLITZER: Good luck. We're all counting on you guys to get this done.

MCCARTHY: That's great.

BLITZER: Homeowners should be paying very close attention to this entire fiscal cliff drama. We're going to show you what's at stake for homeowners all across the country.

Plus, a CNN exclusive, the secret weapons of a would-be assassin now revealed.

(COMMERCIAL BREAK)

BLITZER: Homeowners should be paying particular attention to the looming fiscal cliff, especially the mandatory tax hikes that will kick in January 1 unless Congress and the White House can reach a deal to cut the debt.

It turns out some real estate transactions may be particularly hard-hit.

CNN's Lisa Sylvester is joining us now with details.

Lisa, what do viewers out there across the country need to know right now?

LISA SYLVESTER, CNN CORRESPONDENT: Well, Wolf, what lawmakers are Capitol Hill are debating now, it could have a direct impact on homeowners across the board and it doesn't matter if you live just off of Wall Street or smack dab on Main Street.

(BEGIN VIDEOTAPE)

JORGE URIBE, REALTOR: You basically have 270 degrees of pure ocean. SYLVESTER (voice-over): Amazing views, luxury bathrooms and a gourmet kitchen, the owner of this $8 million penthouse home in Coconut Grove, Florida, is eager to sell it before the end of the year because of the pending fiscal cliff. Unless Congress acts by year end, capital gains taxes will go up. For homeowners with a lot of equity in their homes, selling now can make a big difference.

URIBE: If you're looking for someone who's selling their property at a $10 million sales price and they have a $5 million cost in the property, there's a potential $5 million profit, capital gains being 15 percent right now. And they're estimated to go up to 25 percent next year.

So in theory, there's $500,000, let's say, savings for both seller and buyer to get the deal done.

SYLVESTER: Even if you have an averaged-priced home, the fiscal cliff negotiations could have a major impact on you. Congress could limit the amount of home mortgage interest homeowners can write off their taxes. One proposal from the Simpson/Bowles Commission would cap the deduction at $500,000. Lawmakers may also limit tax breaks for second homes.

Distressed homeowners could also see major changes ahead. The Mortgage Debt Relief Act, which waives the tax obligation on portions of the mortgage, is set to expire at the end of the year. And new estate tax rules will likely kick in. The exemption level drops back down to $1 million from the current $5 million.

That's causing a mad scramble to pass real estate and other assets down to children and grandchildren, says Maryland estate lawyer Gary Altman.

GARY ALTMAN, ESTATE LAWYER: It is like a feeding frenzy of tax break that everyone is worried that at the end of this year there's only going to be a small amount which is a million dollars that will pass free of estate tax and gift tax, so they want to lock in the exemption this year before it goes away.

(END VIDEOTAPE)

SYLVESTER: You know, possibly the worst thing though for the housing market would be if there's no compromise and we end up going over the so-called fiscal cliff and then there would be a sharp cut in government spending. That could push the economy into recession, raising the unemployment rate and, of course, that could push home values back down, Wolf.

BLITZER: It's a nightmare scenario for a lot of folks. Thanks very much, Lisa, for that report.

BOLDUAN: Still ahead, New York City puts an eye-popping price tag on the damage from superstorm Sandy and Mayor Michael Bloomberg is asking Washington for help.

(COMMERCIAL BREAK) (NEWS BREAK)

BLITZER: We have got other important news we're following, including Hamas weapon stockpiles depleted in last week's fighting with Israel, but now sources telling CNN that weapons once again flowing in to Gaza thanks to Iran. We have details.

(COMMERCIAL BREAK)

BLITZER: The smoke has barely cleared from the fighting between Israel and Hamas last week.

BOLDUAN: And Iran is already believed to be replacing the weapons Hamas lost to Israeli airstrikes.

CNN Pentagon correspondent Barbara Starr is working that side of the story for us.

Barbara, what are you picking up?

BARBARA STARR, CNN PENTAGON CORRESPONDENT: Kate, everyone is looking very positively upon the notion that the hostilities of the last several days are over for now, but the question is just that, what is Iran doing to back Hamas for the next round?

(BEGIN VIDEOTAPE)

STARR (voice-over): The Iranian port of Bandar-Abbas now under intense surveillance by U.S. and Israeli intelligence service using spy satellites to gather the latest on Iran's cargo ships and aircraft smuggling weapons into Gaza.

Washington and Tel Aviv are sharing that intelligence. One senior U.S. official tells CNN, Iran is finding ways of resupplying Hamas. U.S. and Israeli officials say from Bandar Abbas ships make the way into the Red Sea and dock in Sudan. Some unload arms and missiles parts, which are then smuggled over land into Sinai and then into Gaza's tunnels. Others dock further north before entering Gaza.

Iran wants to keep several routes open, especially if there's a coming crackdown.

JON ALTERMAN, MIDDLE EAST PROGRAM DIRECTOR, CENTER FOR STRATEGIC AND INTERNATIONAL STUDIES: It is not so easy to get things into Gaza unless you use the tunnels and what the Egyptians seem to be doing with the agreement is moving toward arrangement where what goes into Gaza goes in above ground when it's being inspected by somebody. That may make it much harder to get weapons into Gaza.

STARR: But the Israeli military spokeswoman told CNN's Wolf Blitzer Iran is not letting up.

LT. COL. AVITAL LEIBOVICH, SPOKESWOMAN, ISRAELI DEFENSE FORCES: It tried during the operation itself to push more and more rockets inside the Gaza Strip.

BLITZER: What happened to them?

LEIBOVICH: We're monitoring that. But the question is...

BLITZER: What does that mean?

LEIBOVICH: It means that we know that Iran is deeply involved with Hamas inside Gaza.

STARR: Israeli officials tell CNN it's been almost impossible to shut down the hundreds of sophisticated tunnels lacing Gaza because of millions of dollars in economic activity. Trusting Egypt with sensitive intelligence about weapons smuggling could be risky.

ALTERMAN: After all, if there is an emerging alliance of Hamas and the government of Mohammed Morsi, you have to be very careful what you tell the government of Mohammed Morsi what you know about Hamas, for fear it will go right back to Hamas.

(END VIDEO CLIP)

STARR: Now, the outgoing Israeli defense minister, Ehud Barak, will be here at the Pentagon later in the week. And I think you can count on this issue to be at the top of his list.

Hamas for its part says it will continue to try and get weapons. And we reached out to the Iranian government, but we were not able to get a response from them -- Kate.

BOLDUAN: And Barbara, you talk about it nearly impossible to shut down all of the tunnels that there are where these weapons are coming in, in part. But is there anything more that can be done on the part of -- I don't know -- the U.S. or Israel to try to slow this influx of weapons?

STARR: Well, you know, the State Department has pointed out that there are some U.N. resolutions governing Iran's ability, legality of exporting weapons. So that's one way to go.

What they want to see is the international community, especially the nations in the region like Sudan, Egypt, crack down more, not let these Iranian shipments into their air space or into their ports. When cargo comes in, inspect it. Get this stuff before its goes into the Gaza tunnels.

But, look, that's been a smuggling route for decades now. So it's going to be hard to see how there might be changes any time soon.

BOLDUAN: Any time soon. Great work. Barbara Starr at the Pentagon for us tonight. Thank you, Barbara.

STARR: Sure.

BLITZER: Ehud Barak caught Israel, the United States, indeed, most of the world off guard today, announcing he's stepping down in January and leaving politics. As Barbara just reported, Barak's -- Ehud Barak's resignation could hardly come at a more critical time for Israel.

CNN's Brian Todd is working this part of the story for us.

So first of all, Brian, what do we know about Ehud Barak's decision?

BRIAN TODD, CNN CORRESPONDENT: Well, it seems to be more about the political maneuverings inside Israel, Wolf, and the lack of support for Ehud Barak's party in the Israeli parliament. That's the microbe. But the bigger questions have to do with a critical cease- fire just brokered and whether Israel will strike Iran.

(BEGIN VIDEOTAPE)

TODD (voice-over): He's pulling the standard excuse, saying he's quitting in January to spend more time with his family.

EHUD BARAK, ISRAELI DEFENSE MINISTER (through translator): There are many ways to contribute to society in the country. Not necessarily through politics.

TODD: Israeli Defense Minister Ehud Barak leaves at a precarious time: while his country holds onto a fragile cease-fire just reached with Hamas. Analysts say Barak's resignation likely won't affect that.

AARON DAVID MILLER, WOODROW WILSON CENTER: The cease-fire is not going to stand or fail according to presence or absence of any single individual. It's driven essentially by national interests. Hamas did not want to incur an Israeli ground attack, and Israelis didn't want to offer one up.

TODD: But there's another threat to Israel, the U.S. and their allies that Ehud Barak's departure could aggravate.

(on camera) Barak's resignation also comes as Israel faces a looming decision on whether to attack Iran's nuclear facilities. The key questions: was Ehud Barak someone who restrained Prime Minister Netanyahu from going after Iran? And what happens now?

(voice-over) Analysts say recently Barak did restrain Netanyahu, convincing him to hold off an attack until the American elections and beyond. Early on, though, they say Barak helped build Netanyahu support among other Israeli leaders for a possible strike on Iran.

DAVID MAKOVSKY, WASHINGTON INSTITUTE FOR NEAR EAST POLICY: Barak gave Netanyahu the security cover to pursue the option when the others wanted a more cautious approach.

TODD: Ehud Barak could do that, because he's Israel's most decorated soldier ever, a man who once commanded Benjamin Netanyahu in an elite military unit and spearheaded some of Israel's most daring commando raids. He once dressed as a woman to move into Beirut and kill PLO operatives in revenge for the attack on Israeli athletes at the Munich Olympics.

It's that kind of resume, a historical gravitas, that Netanyahu will miss, experts say, if and when he presses harder to strike Iran.

MAKOVSKY: It hurts Netanyahu that he won't have someone with those security street cred credentials. No one with those security credentials that he could point to saying, "Now, go forward."

(END VIDEOTAPE)

TODD: That may mean more restraint from Netanyahu with Iran or it may not. Ehud Barak's departure takes away something else from this whole equation. Analysts say he was Netanyahu's key go between with the Obama administration, convincing Netanyahu to stick to President Obama's wishes to let sanctions work against Iran.

Now that Ehud Barak is about the leave, it's not clear who can bring Netanyahu back from a possible confrontation if Netanyahu decides to attack Iran -- Wolf.

BLITZER: I know a lot of U.S. officials, Obama administration officials, had the highest, highest regards for Ehud Barak...

TODD: Right.

BLITZER: ... as Israel's defense minister. And as you point out, he says he wants to spend more time with his family. Nothing wrong with that. But obviously, there's a lot more to his departure than just wanting to spend more time with his family.

TODD: There clearly is. You know, his party is probably not going to win any seats in parliament -- maybe one or two but not many -- in the upcoming Israeli elections. That would make it hard, maybe not impossible, for him to remain as defense minister.

But there are also reports that maybe he and Netanyahu are now split over whether to attack Iran. And between that and the lack of political support in the election, this was -- he thought it was the time to go.

BLITZER: Brian Todd, thanks very, very much.

You know, Kate, the last time I interviewed Ehud Barak, he made a point of saying to me that U.S.-Israeli military-to-military intelligence-to-intelligence relations, in his opinion, and he's been around a long time, have never been better, and he thanked President Obama for that very much.

BOLDUAN: Yes. High compliments for the president at that point, too. All right. We'll see. Try to get him back on.

Still ahead, we've heard all the critics. But big-name lawmakers going up against U.N. Ambassador Susan Rice, who might be President Obama's pick for secretary of state. Now, she's taking action. We've got new information, next.

(COMMERCIAL BREAK)

BLITZER: All right. This just coming in to CNN. The U.S. ambassador to the United Nations, Susan Rice, will be here in Washington up on Capitol Hill this week to talk about the deadly attack on the U.S. consulate in Benghazi, Libya.

CNN's White House correspondent, Dan Lothian, has confirmed this information from his sources. Dan's joining us now.

Dan, what else are you learning?

DAN LOTHIAN, CNN CORRESPONDENT: We're also hearing from a Senate source that the ambassador will be meeting with Senator John McCain tomorrow morning.

We're also hearing that at one of the meetings later this week that Mike Morell with the CIA joining Ambassador Rice.

Now, this comes after Senate -- Senator McCain, rather, seemed to be putting the brakes on a bit on some of the harshest criticism of Ambassador Rice and her actions in the wake of the Benghazi attacks.

(BEGIN VIDEOTAPE)

LOTHIAN (voice-over): From threatening to block her nomination as possible secretary of state to a willingness to hear her out, Senator John McCain seems to be dialing back his public opposition to Ambassador Susan Rice.

SEN. JOHN MCCAIN (R), ARIZONA: I think she deserves the ability and the opportunity to explain herself and her position.

LOTHIAN: Another vocal critic, senator Lindsey Graham, is still expressing doubts about her but avoided answering whether he would still stand in the way of a Rice nomination.

SEN. LINDSEY GRAHAM (R), SOUTH CAROLINA: When she comes over, if she does, there will be a lot of questions asked of her about this event and others.

LOTHIAN: Whether this apparent new tone is a real shift in thinking prompted by political pressure or more nuanced language, the White House is all ears.

JAY CARNEY, WHITE HOUSE PRESS SECRETARY: Certainly saw those comments and appreciate them, as the president has said and I and others have said. Ambassador Rice has done an excellent job at the United Nations. And is highly qualified for any number of positions in the foreign policy arena.

LOTHIAN (on camera): Would the president like to nominate her?

CARNEY: I have no announcements to make on personnel.

LOTHIAN: She hasn't been nominated, but she's widely believed to be at the top of the list to replace Secretary of State Hillary Clinton, who has said she will not stay for a second term.

Ambassador Rice came under fire for suggesting the Benghazi attack that killed four Americans was a spontaneous event.

SUSAN RICE, U.S. AMBASSADOR TO THE U.N.: There was a hateful video that was disseminated on the Internet. That sparked violence in various parts of the world, including violence directed against western facilities including our embassies and consulates.

LOTHIAN: Much later, the administration labeled it a terrorist attack. Even though officials pointed to early language the president used referencing, quote, "acts of terror," Republicans pounced, focusing on the possible nomination of Rice as secretary of state.

MCCAIN: We will do whatever's necessary to block the nomination.

GRAHAM: I am dead set on making sure we don't promote anybody that was an essential player in the Benghazi debacle.

(END VIDEOTAPE)

LOTHIAN: Now, during his last news conference, the president was asked about that criticism. He praised Ambassador Rice's work, said that, if the senators wanted to go after anyone, they should go after him -- Wolf.

BLITZER: Dan Lothian with the latest at the White House. Dan, thanks very much.

Let's bring in our chief political analyst, Gloria Borger. I assume these meetings that she's going to have, beginning with John McCain tomorrow morning, designed to ease any of the opposition to her confirmation.

GLORIA BORGER, CNN CHIEF POLITICAL ANALYST: You think? You think John McCain is just a coincidence?

BLITZER: No.

BORGER: Right. Well, exactly. And even if she doesn't get the nomination, she's got to talk to John McCain.

It was clear, over the weekend, he was softening and she decided, I think very smartly, to kind of take advantage of that softening. And what she's going to do, I think, privately is explain to him just what transpired, when she got that intelligence on the attacks in Benghazi, and try and convince him that she wasn't part of any cover- up of terrorist activities.

And the question, I'm sure, John McCain will be asking is, then, if you weren't part of any kind of a cover-up, why is it that the CIA was giving you information that they knew to be bad? Because we've had General Petraeus testify that he believed it was a terrorist attack from day one.

BLITZER: So, the question is this. There are plenty of Republicans out there privately thinking it would be a losing battle to try to block her...

BORGER: They do.

BLITZER: ... confirmation. Politically, she's a woman. She's African-American.

BORGER: That's right.

BLITZER: Does that make sense after the election for them to go after her?

BORGER: And I talked to some Republicans about it today. The feeling is why do you want to start off this important year -- forget the fact you've got the fiscal cliff negotiations going on, but you've also got issues you're going to have to deal with with Iran, with Gaza, with Afghanistan, with Syria. You've got serious issues you've got to deal with.

Why do you want to go back and start this way, with a bruising confirmation battle, which in the end she'll probably get through? Why is this a way to start a year when the American public has said to you, "You know what? Let's stop with the partisanship for a minute and let's get some things done," and I think it would be -- some Republicans are believing it would be counterproductive for their party to do this.

BOLDUAN: You can see it in Dan's piece, but it was really a marked shift in tone by Senator McCain.

BORGER: Yes.

BOLDUAN: Do you think what you just said is really the overarching reason why there's a softening tone? What do you think?

BORGER: First of all, John McCain was very angry about Benghazi, clearly. We were at the end stages of the presidential campaign. So that only adds to it.

I do believe, however, that John McCain is kind of a traditionalist when it comes to the Senate, who always errs or tries to err on the presumption of giving the president his nominee when that nominee comes up before the Senate.

I also think there are some conservatives -- Bill Kristol's one of them -- over the weekend who said, "You know what? Susan Rice may be more interventionist and more muscular in her foreign policy than John Kerry, who is the other potential nominee. So maybe we need to take Susan Rice instead of -- instead of John Kerry."

BOLDUAN: And when you think of kind of the dynamics on Capitol Hill and the relationship with -- from Capitol Hill to the White House, I mean, what impact do you think a bruising battle over Susan Rice would be, with all the other things that they're working on?

BORGER: Well, exactly. I mean, you know, you could have a three-ring circus or you could try and cut down one of the rings, you know, and push that to the side. And you've got the fiscal cliff going on. You've got issues that have to do with Egypt, foreign aid to Egypt. You've got Gaza. Why do you want to have another ring there? And start dealing with this confirmation battle, which as Wolf pointed out earlier, the optics of a confirmation battle with Susan Rice. African-American woman. Two groups that the Republican Party did not do very well with, I might add, in the last election.

BOLDUAN: Kind of acknowledging they need to do better.

BORGER: By the way, I don't mean to impugn John McCain or Lindsey Graham for criticizing her. I think they have their reasons that have nothing to do with anything other than Benghazi, but I do think the optics of it is not something the Republican Party is looking for right now.

BOLDUAN: Something you can't ignore.

BORGER: Right.

BLITZER: See what kind of diplomat she is. She's been at the U.N. -- I've known her for 20 years. She worked in the Clinton administration. Traveled through Africa with her. She is tough, she is smart. But let's see how diplomatic she'll be, meeting with John McCain, Lindsey Graham, these other Republicans.

BORGER: But you know what? John McCain, I would have to say, likes tough women. Gets along very well with Hillary Clinton, for example. She is a tough woman. And maybe -- I mean, we don't know. Maybe Hillary Clinton at some point will get...

BOLDUAN: And we also know that he can change his opinion. He is the way he is.

BORGER: Yes.

BOLDUAN: That's John McCain.

BORGER: Yes.

BLITZER: Wouldn't be the first time. Let's see what happens. Let's see if the president, first of all, nominates her.

BOLDUAN: We might be getting a step ahead.

BLITZER: CNN is getting rare access right now into the weapons used by real-life spies and government assassins. We're not talking about a James Bond movie. We're talking about something that's real, and that's next.

(COMMERCIAL BREAK)

BLITZER: North Korean spies operate in the shadows, but we see what they're up to sometimes. The plots can be rather stunning. The latest was a plan to kill defectors in cold blood with weapons that could only come from a spy novel. CNN's Paula Hancocks was given this exclusive look by the South Korean authorities.

(BEGIN VIDEOTAPE)

PAULA HANCOCKS, CNN CORRESPONDENT (voice-over): An assassination attempt foiled. A North Korean spy is arrested on the streets of Seoul. This was a year ago, and this is the first time South Korean intelligence officials are showcasing the weapons exclusively to CNN.

(on camera) So, how does this work?

UNIDENTIFIED MALE (through translator): This poison needle was made to look like a Parker ballpoint pen. There's a tube inside here. In order to activate it, we have to twist it towards the right three to four times, and then press the top part like this.

HANCOCKS: If you're shot by this pen, what happens to you?

UNIDENTIFIED MALE (through translator): It would cause muscle paralysis very quickly, which would lead to suffocation and death.

HANCOCKS (voice-over): The second pen shoots a poison-filled bullet, which penetrates the skin. The powdered poison is then released.

(on camera) Now, these pens look like they belong in a James Bond movie. But is it -- is it new technology or is this quite old, outdated technology?

UNIDENTIFIED MALE (through translator): These pen weapons are not new. North Korean spies had this technology for about ten years, but this flashlight is new. Never seen this weapon before.

If you look at the front, there are three holes. There was a bullet in each hole, and here is the trigger. This is currently loaded and dangerous. Two bullets remain.

HANCOCKS (voice-over): Forensics experts fired one bullet to test the gun disguised as a flashlight. It was accurate and deadly and almost impossible to identify as a weapon.

When police arrested the would-be assassin, he was carrying all three weapons. None had been fired.

This man was his target. Defector and anti-Pyongyang activist, Park Sang Hak, renowned in South Korea for sending anti-regime propaganda leaflets across the border in balloons.

He was due to meet the would-be assassin, who had claimed he wanted to fund his activism. South Korean intelligence agents stopped him at the last minute.

PARK SANG-HAK, NORTH KOREAN DEFECTOR AND ACTIVIST (through translator): I didn't believe they would try and kill me on the crowded streets of Seoul. I thought the national intelligence service was overreacting.

HANCOCKS: We showed Parks the weapons intended to kill him. He hadn't seen them before in such detail and seemed shocked.

SANG-HAK (through translator): You would note the gun, but these weapons are so innocuous, you could easily kill someone. I would have been killed instantly.

HANCOCKS: Parks knows he's at the top of North Korea's hit list and has around-the-clock police protection. Having seen the weapons intended to kill him, he says he knows there will be more assassination attempts, but he will not stop his activism.

Paula Hancocks, Seoul, South Korea.

(END VIDEOTAPE)

BOLDUAN: Still ahead, an award ceremony sparking global outrage. Justin Bieber is at the center of it all, all because of what he wore while meeting the Canadian prime minister. Now, the teen pop star is firing back.

(COMMERCIAL BREAK)

BOLDUAN: Take a look at this. This gives a whole new meaning to the term road house. In this case, the house came first and the road clearly came later. The China Daily newspaper says the elderly couple who owns this house refused to give permission for its demolition because they didn't think they were getting enough compensation money from the government.

So what did the government do? They built a highway right around the house.

BLITZER: Wow.

BOLDUAN: There you go.

BLITZER: Stuff happens in China like that.

All right. People generally dress up when they receive awards from top government leaders, but the singer Justin Bieber's choice of attire for a recent event was so unusual it caught the eye of the fashion critics and our own Jeanne Moos.

(BEGIN VIDEOTAPE)

JEANNE MOOS, CNN CORRESPONDENT (voice-over): They may be called overalls, but they sure can leave you underdressed.

UNIDENTIFIED FEMALE: I see, I see, he's drooping.

MOOS: When Canada's prime minister awarded fellow Canadian Justin Bieber the Diamond Jubilee Medal the other day, Bieber got an online dressing down. "So is he a train conductor now?" "He dresses like an American hillbilly." (on camera) Is there anything about this that strikes you?

UNIDENTIFIED MALE: Other than that he's dressed inappropriately?

UNIDENTIFIED MALE: Yes, he looks terrible.

MOOS (voice-over): It was the combination of off-the-shoulder overalls, the backwards cap and the neon yellow shoes. But when London's "Daily Mail" echoed a blog that called Bieber "white trash prince," Bieber fired back, saying that the medal ceremony took place at an arena where he was set to perform and had just had a meet and greet.

"If you expect me to have a change of clothes, let alone a suit at that specific time, that's crazy. It wasn't like it was like I was going into his environment. We were at a hockey arena. Wow, am I ever white trash."

UNIDENTIFIED FEMALE: I actually think it's cute. He looks like a teenager.

MOOS (on camera): So, you're Canadian and you don't care?

UNIDENTIFIED FEMALE: No, that's part of his persona.

UNIDENTIFIED MALE: Did you ever see Steve Jobs in a tie? Nobody wears ties anymore.

MOOS: Except the prime minister.

(on camera) And Canadian prime minister Steven Harper has seen the news, tweeting out, "In fairness to Justin Bieber, I told him I would be wearing my overalls, too."

On Sunday, Bieber performed "Boyfriend" at Canadian football's Grey Cup halftime show. And was repeatedly booed.

We haven't had a fashion mismatch like this since Lady Gaga met the queen wearing a red latex dress and panda eye makeup.

Actually, Justin, it could have been worse. Could have met the prime minister wearing sunglasses or those leather dropped-crotch pants. At least the snake he took to the video music awards didn't slither out from under those overalls.

Jeanne Moos, CNN...

UNIDENTIFIED MALE: It does look like they're coming to -- going to different parties.

MOOS: ... New York.

(END VIDEOTAPE)

BOLDUAN: I think they were definitely going to different parties. BLITZER: He's Justin Bieber.

BOLDUAN: It could be worse. I'm kind of in this thing where I think it could have been worse.

BLITZER: A quick note. Tomorrow, I'll have a one-on-one interview with Mexico's president-elect, Enrique Pena Nieto. He'll be here talking to the president of the United States. We'll talk about the drug war, immigration, a whole lot more tomorrow. That interview will air right here in THE SITUATION ROOM.

I'm looking forward to meeting him.

BOLDUAN: I'm looking forward to seeing it.

BLITZER: Remember, you can also follow us on Twitter. You can follow me, @WolfBlitzer. You can follow -- they can follow you, as well, right?

BOLDUAN: Yes, you can, @KateBolduan.

BLITZER: I'm going to follow you.

BOLDUAN: You already do.

BLITZER: "ERIN BURNETT OUTFRONT" starts right now.