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The Situation Room

Home Interest Deduction Going Away?; Congress Working on Fiscal Cliff; GOP Rethinks a Clinton Successor; Home Deductions on Cutting Block; McCain's Softer Tone on Rice; Can Rice Be Confirmed?; Some Lawmakers Dump Anti-Tax Pledge; Wolf Talks "Fiscal Cliff" with Top GOP Leader; Syrian Government Accused of Atrocity; Cloak and Dagger From North Korea

Aired November 26, 2012 - 16:00   ET

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

WOLF BLITZER, CNN ANCHOR: Happening now: Congress comes back to work, but the clock is ticking. Unless lawmakers make a deal, automatic spending cuts and tax increases are just a matter of only a few weeks away for everyone. I will ask a top member of the Republican leadership if there's any room for serious compromise.

And if you own a home, deductions that save you money every year could be changing or simply going away. We're taking a closer look.

And ballpoint pens that hide poison needles and poison bullets, they sound like props in a Cold War era spy movie. But they're part of a very real assassination plot. We have details.

I'm Wolf Blitzer. You're in THE SITUATION ROOM.

We're just 36 days away from the painful across-the-board spending cuts and tax increases people here in Washington are calling the fiscal cliff. Today, we have new proof that people across the country not only are aware of what's going on; they're very, very worried.

Our new poll shows 68 percent say the country will face either a crisis or major problems if the cuts in taxes aren't avoided. And a whopping 77 percent say their personal financial situation will be affected by a failure to solve the fiscal cliff problem.

Despite this nationwide sense of urgency, there's only a little talk of compromise right now as lawmakers return to Washington.

Our congressional correspondent, Kate Bolduan, has been working her sources on Capitol Hill and what's going on.

Stakes are enormous right now, Kate. What's going on?

KATE BOLDUAN, CNN CORRESPONDENT: The stakes are enormous. They were away for a week. Their staff was supposed to be working. But lawmakers are arriving back in town with no real whisper of an imminent breakthrough at the moment to avoid this looming series of tax increases and spending cuts that could very well 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: Bottom line, as we always say, talks continue here in Washington. The White House says the president did speak with Speaker Boehner and Senator Reid over the weekend to touch base on this very issue.

As one Republican aide put it to me, put it to CNN, the fact that they are still talking is progress. But a Democratic aide did say they don't have staff huddling in a room going over spreadsheets which is where they need to get at some point to hammer out a deal. What they're doing more right now is they're at the dancing stage of this negotiation.

BLITZER: A lot of folks are saying it's not the Republicans in the Senate so much that will be the problem for the Obama administration, but Republicans in the House of Representatives, especially those from the Tea Party movement and others will be a serious problem. What are you hearing?

BOLDUAN: That was an important group of Republicans during the debt ceiling debate. While this election has changed the arithmetic in terms of who is holding how many seats, there's still very much Republicans in the control of House. Democrats control the Senate. Republicans in the House will be key to this negotiation. Many people saying that really the two men that need to hammer out this deal, just like it was over the summer on the debt deal, is still President Obama and Speaker Boehner. And they have got to figure it out before anyone moves forward.

BLITZER: I don't think there's any doubt the president will have his Democratic base on board if he agrees to it. The question is, will Boehner have his Republican base on board? Will he be able to bring them all in?

BOLDUAN: Those talks continue.

BLITZER: We will find out soon enough.

BOLDUAN: We will find out soon enough.

BLITZER: Matter of a few weeks, Kate. Thank you.

Both Congress and the White House certainly under increased intense pressure right now to make a deal. Our new poll also shows voters are getting rather impatient.

Let's bring in our chief political analyst, Gloria Borger, who's also working this.

New poll numbers. Who's going to get the most blame if there's no deal?

GLORIA BORGER, CNN SENIOR POLITICAL ANALYST: Let's start by saying, first of all, that you have a very skeptical public you're dealing with. But our new poll did ask the question, who would be more responsible if we head over that fiscal cliff? And, as you see there, Wolf, more people, 11 points, will blame the Republicans. But I pulled out in sort of doing a deeper dive of the number of independent voters. Look at that. Independents whom we learned in this last election are really Republican-leaning voters, but they're kind of disenchanted, 43 percent of them would blame the Republicans. Again, only 32 percent blame the president.

Sort of Republican-leaning independents, that's the problem for Speaker Boehner and the Republicans in the House, because those are the voters they need to come back into the Republican ranks, which is why you have this sort of softening of the tone that we have been hearing over the weekend, in style, if not in substance, at least not yet.

BLITZER: And where is the American public as far as the president's role is concerned?

BORGER: Well, the president has his own tricky situation. He's just been reelected, he has to prove that he's a strong leader. He's got his liberals saying to him, we're not going to take those entitlement cuts. He's got those House Republicans he's got to deal with. We asked the question, is President Obama doing enough to cooperate with Republicans?

And you look at this, it's about a tie given the margin of error here. So the president has to prove that he can also make overtures to the Republican Party that are realistic, that they may be willing to accept while balancing the concerns of his liberal base, which after all, got him reelected to the presidency, Wolf. So this is really a leadership test out of the box for President Obama.

BLITZER: Has the public's attitude toward Washington softened at all?

BORGER: What do you think? The answer to that is, absolutely not. We asked the question how people expect Washington officials to behave. Take a look at this. Responsible adults, 28 percent. Spoiled children, 67 percent. I think that tells you about all you need to know about what the public thinks about Washington, D.C., right now.

BLITZER: And when we describe Washington officials as members of the executive and legislature branch, branches of the government...

(CROSSTALK)

BORGER: All of them, all the children of Washington. There's plenty of blame to go around.

BLITZER: Spoiled children.

BORGER: Well, we will see. Maybe they won't play to type this time.

BLITZER: It would be great if they got a deal, resolved these issues, threw in the debt ceiling so you don't have to go through this battle again in February or March, raise the debt ceiling now so that the country can move on to some critically important issues, creating jobs, strengthening the economy.

BORGER: Do you believe in miracles, Wolf?

BLITZER: I'm an optimist.

BORGER: Me, too.

BLITZER: Thank you.

BLITZER: As our poll makes clear, the voters want Democrats and Republicans to work together. But how much ground will the Republicans give? A top member of the House GOP leadership is here in THE SITUATION ROOM. We will talk about that.

Also, the prospect of a big promotion for the U.S. ambassador to the U.N., Susan Rice, even though he's been the target of Republican attacks for weeks.

(COMMERCIAL BREAK)

BLITZER: Cyber Monday online shopping numbers are smashing records.

(NEWS BREAK)

BLITZER: The guessing game about who may replace Hillary Clinton as the secretary of state is in high gear once again today. It's all because Senator John McCain just signaled he's open to talking things over with one of the top contenders for the job, the U.N. ambassador,Susan Rice.

Our White House correspondent Dan Lothian has noticed the change in tone. Dan's joining us now with more.

What's the latest on the successor for Hillary Clinton, Dan?

DAN LOTHIAN, CNN WHITE HOUSE CORRESPONDENT: That's right.

And this is Senator John McCain, who had been working to discredit Ambassador Rice, had really been digging in on this, criticizing -- criticizing her, prompting the president at his news conference to say, if they wanted to go after anyone, they should go after him. Well, now, there's a noticeable shift and Senator McCain says he's ready to listen.

(BEGIN VIDEOTAPE)

LOTHIAN (voice-over): From threatening to block her possible 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): Does the president plan to nominate her (ph)?

CARNEY: I have no announcements 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's 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.: What we think transpired in Benghazi is opportunistic extremist elements came to the consulate as this was unfolding.

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 is 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, we have been reaching out to Senator McCain's office all day, trying to get them to clarify if in fact the senator intended to soften his stance. So far, Wolf, no response.

BLITZER: Any indication when we're going to get an announcement from the president who he'd like to see as secretary of state?

LOTHIAN: Nothing yet. As you saw there, I was pressing Jay Carney on it. There are a whole host of other potential names for other positions as well. But no indication from the White House yet as to when the president will start rolling out new names.

BLITZER: I guess they'll have to have confirmation hearings obviously starting in January. I assume the new Senate will do the confirmation hearings as opposed to a lame duck Senate. Thanks very much, Dan Lothian, for that.

The fiscal cliff could force politicians to finally make some tough decisions. One of the hardest could involve a popular tax break enjoyed by millions of Americans.

(COMMERCIAL BREAK)

BLITZER: The fiscal cliff means a lot of things are on the cutting block right now, things that used to be sacred cows for a lot of politicians. Some involve what was once one of the most dependable of investments -- property.

Lisa Sylvester is back. She's talking about possibility of something very important to a lot of Americans could be cut.

LISA SYLVESTER, CNN CORRESPONDENT: Yes, that's right, Wolf. You know, what lawmakers 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: I still consider it like a feeding frenzy of a tax break that's going to be going away.

(END VIDEOTAPE)

SYLVESTER: Possibly the worst thing, though, for the housing market would be if there is in compromise and we end up going off that 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 right back down.

BLITZER: Yes, the White House released that study earlier in the day saying if we were to go over the fiscal cliff, it could reduce economic growth next year by, what, 1.7 percent, which is significant.

SYLVESTER: There is a lot of reasons for both sides here to compromise because it's something that I think no one wants to see us go back into recession. The economy, whether you look at home values, whether you look at home sales, it's just coming back. And now to go over to recession again because they can't reach a deal, that would be a really big problem, Wolf.

BLITZER: (INAUDIBLE) the president and John Boehner --

SYLVESTER: That's right.

BLITZER: -- get it done.

SYLVESTER: Absolutely.

BLITZER: Thank you.

A top member of the House Republican leader is standing by to join us live here on THE SITUATION ROOM. I'll ask Kevin McCarthy, the majority whip, how far his party will go on raising taxes, limiting deductions, cutting spending to make a deal to avoid the fiscal cliff.

(COMMERCIAL BREAK)

BLITZER: Let's get straight to our strategy session. Joining us are two CNN contributors, the Democratic strategist Donna Brazile. She's joining us from beautiful New Orleans, and here with me in Washington, the former speechwriter for President George W. Bush, David Frum.

Guys, thanks very much for coming in.

David, let me start with you and I'm going to play a little clip. This is John McCain speaking about Susan Rice who potentially could be the next secretary of state if she's confirmed. Listen to how he phrased it over the weekend.

(BEGIN VIDEO CLIP)

MCCAIN: Give everyone the benefit of explaining their position and the actions that they took. And I'll be glad to have the opportunity to discuss these issues with her.

(END VIDEO CLIP)

BLITZER: That's a lot softer, obviously, than what he had said only a couple of weeks or so ago when he said he would do everything in his power to try to block her confirmation if the president nominates here. What's going on here?

DAVID FRUM, CNN CONTRIBUTOR: A lot of things came out of Susan Rice's mouth in the aftermath of the Benghazi killings that were not true. And the question is: who put those words in her mouth? Were they her own idea or were they placed by somebody else?

And the record is increasingly showing that she was reading notes created for her by other people. Now, whether or not reading notes created for you by other people is a desirable attribute in a secretary of state, it does shift some of the blame for saying things that weren't true away from Susan Rice.

BLITZER: Let me let Donna weigh in on that. She says she was reading notes that the intelligence community talking points had created for her and she was strictly sticking to that script, which it turned out to be inaccurate.

DONNA BRAZILE, CNN CONTRIBUTOR: Well, as you know in the fog of war, we often get -- at least the intelligence community, they've gotten things wrong. I mean, Colin Powell using some unclassified documents got it wrong in the -- before the Iraqi war.

But, look, I think the important thing is that Senator Graham, Senator McCain, they're walking back some of the hostile comments they've made just a week ago. Susan Rice is very qualified if the president decides to nominate her to be the next secretary of state. She's had a wonderful tenure at the U.N., not only in dealing with the crisis in Iran and North Korea and so many other hot spots across the world.

I think she brings a lot to the table, her qualifications, her -- you know, she worked in the Clinton administration as well. I would hope that if she's nominated, they would give her an opportunity to state her case and confirm her as the next secretary of state.

BLITZER: Let me let David weigh in on this part of the question because you worked in the White House -- in the Bush White House. So you're familiar with what's going on.

If somebody goes on five Sunday talk shows and they prepare talking points, if you will, if you're the principal spokesperson making those points, are you obligated to simply read those talking points or memorize them or do you bring your own expertise, your own knowledge to the table?

FRUM: Well, it depends on how formidable a character you are, but there's another problem, which is those talking points were not -- they didn't just happen to be wrong. They were crafted to be wrong.

The Obama administration had an embarrassing problem, four dead Americans including an ambassador, a lot of suggestions of negligence and lack of preparation. So they were very eager to pin the blame on something else.

Something else that would deflect blame away from them, which is why they put so much emphasis on the story about the video, this silly video that seems now quite clearly not to have been the cause of Benghazi.

That was Washington covering its behind and whether Susan Rice was a principal in the covering or not is unclear, but it was covering. One more thing to Donna, look, Susan Rice's main qualification for this job is that back in 2008.

When most of the democratic foreign policy establishment lined up with Hillary Clinton, she lined up with President Obama. That's why she's got this job, not because she's one of the outstanding foreign policy figures in the United States.

BRAZILE: You know, she worked in the Clinton administration. She brings a lot to the table. She's an Oxford graduate. She has foreign policy experience --

FRUM: That's true of dozens of people.

BRAZILE: Let's go back to September 11th. September 11th, there were protests all throughout the Arab world and other places across the globe regarding that video. What Susan said and she even qualified her statement that morning.

She said, there are still more details to come out of this investigation. There are three investigations going on. Why in God's name is everybody trying to pin the blame on Susan Rice for getting the talking points wrong? I don't understand that --

FRUM: I think actually what is happening right now --

BRAZILE: I'll put her qualifications on the table any day and stand behind Susan Rice.

FRUM: What is going on right now --

BRAZILE: It's not just because she embraced President Obama in 2008. She worked with honor and distinction in the Clinton administration. And if that is her only qualification, look at her record at the U.N., look at the toughness she's had --

FRUM: Donna, the president can have whoever he wants and I'm a believer that the president should have the president's people. If the president's people are politically loyal to him, it's his prerogative and his determination.

But that does not alter this crucial fact, which is the story about the video was concocted to avoid embarrassment. And what is interesting -- the reason Susan Rice is having a little bit of an easier time this week. It's increasingly clear she was not the person who concocted the story. Somebody else did, but that doesn't change the fact the story was concocted and it was concocted as an excuse.

BLITZER: Hold on -- the intelligence community says they wrote up those talking points for her. Are you suggesting the National Intelligence director, the head of the CIA, they were concocting a politically attuned story, if you will, for the U.S. ambassador to the U.N.?

FRUM: I don't know who was responsible for it. That is the thing that we are going to discover.

BLITZER: They said they did it. They said it wasn't a White House decision.

FRUM: It would not be unheard up in the annals of the United States intelligence officials to write something to protect themselves from embarrassment. That is not unheard of.

BLITZER: I want to move on, Donna, but I want you to react to some of the assertions, the accusations that have been levelled at Senator McCain, Senator Graham, that there's an element of sexism and even racism in their opposition to Susan Race. Do you believe that?

BRAZILE: You know, I know Senator McCain and I don't think he would go that low. Susan Rice, as I mentioned, is very qualified to hold this position if the president -- again, I don't want to prejudge what the president may or may not do with regards to Susan Rice.

I think she has served with honor and distinction. And I'm not going to make this about anything other than if the president nominates her, I'm willing to stand behind her and fight because I believe she's a great public servant.

BLITZER: Donna Brazile, thanks very much for coming in. Appreciate it. David Frum, congratulations to you. Your book "Why Romney Lost" now a "New York Times" bestseller. There it is, "Why Romney Lost" by David Frum. Good work. Thanks very much.

FRUM: Thank you.

BLITZER: The fiscal cliff has more than a few Republicans rethinking their opposition to taxes and the anti-tax pledge that once kept them honest might not be worth more than the paper it's written on. What's going on here?

We'll speak with the number three Republicans in the House of Representatives. Kevin McCarthy is here, the majority whip. Thanks for coming in.

(COMMERCIAL BREAK)

BLITZER: As the automatic spending cuts and tax increase that make up the so-called fiscal cliff get closer and closer, only a few weeks ago, some top Republicans are signalling they're ready to abandon their pledge never to raise taxes or cut deductions.

That pledge pushed by the conservative activist, Grover Norquist, has been part of Republican orthodoxy now for several years, which makes statements like these so surprising. Listen --

(BEGIN VIDEO CLIP)

SENATOR 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.

SENATOR BOB CORKER (R), TENNESSEE: I'm not obligated on the pledge. I made Tennesseans aware. I was just elected, that will only thing I'm honoring is the oath that I served.

REPRESENTATIVE PETER KING (R), NEW YORK: A pledge you signed 20 years ago, 18 years ago is for that Congress.

REPRESENTATIVE ERIC CANTOR (R), MAJORITY LEADER: I will tell you when I go to the constituents that have re-elected me. It is not about that pledge.

(END VIDEO CLIP)

BLITZER: Eric Cantor, the majority leader in the House of Representatives. Joining us now, Kevin McCarthy, he is the majority whip, the number three Republican leader in the House of Representatives. Thanks very much for coming in.

REPRESENTATIVE KEVIN MCCARTHY (R), MAJORITY WHIP: Thanks for having me.

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

MCCARTHY: I think what the American people want is to see the problem solved. What we have, we spend more than $1 trillion more than we bring in every year. We have to solve that problem. We have a weak economy. We borrowed 8 percent of our GDP for less than 2 percent growth. So what we need overall tax reform.

Now the president says he wants a balanced approach. He wants revenues plus spending cuts. The speaker has said, there's 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 the president needs to show where the cuts are, show us where we can cut back on government growth to have that balance --

BLITZER: He says he's ready for some entitlement cuts in Medicare, cuts in Medicaid, some reforms that would effectively result in some 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 tax rate for the upper income, for the highest income bracket? MCCARTHY: What you find is when you raise rates like most economists will tell you, you harm the economy. 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 and those small businesses did quite well during the years of the Clinton administration when the rate was 39.6 percent. Why not go back to that?

MCCARTHY: The economy was stronger then. Remember, two years ago, when the Democrats controlled all. 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 too, he is looking for that revenue.

BLITZER: But the economy's a little stronger now than it was two years ago.

MCCARTHY: I don't know if you've been out there in the economy -- you see a lot of people underemployed, half of college students coming out, a lot of them can't find jobs. We're at our lowest point of new start-ups in 17 years for small business and that's the greatest growth to economy. When you look to the future, we're in a weak position.

BLITZER: What about raising it from 35 percent to 36 percent 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 a billion there --

MCCARTHY: So what you really want to do is sit down and find a place to 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?

So 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? 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 -- BLITZER: But it would remove 98 percent of the middle class families --

MCCARTHY: But talking about the growth of government, 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 --

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 reform in, that's what Republicans are putting on the table to the president. If the president would now say, he wanted 2.5 cuts for every $1.

Show where the 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 --

BLITZER: A two-part system --

MCCARTHY: Yes.

BLITZER: Now, in the next three weeks, four weeks, do you include raising the debt ceiling because that's going to come up in February or March? They 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.

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

MCCARTHY: You can set a framework up where you deal with all these issues, you set where you're going to have overall tax reform, you make cuts in government, bring more revenue in. Put us on a bath to growth, but at the same time protecting small business and get this economy moving again. When more people are working, more revenue is 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 pass, 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 do is you'd raise the rate over 43 percent based upon what the other tax coming in with Obamacare. Well, small business is at its lowest percent in 17 years of new start-ups.

Small business creates more jobs than large corporations. So if you look towards the future, we're at a weaker point. So you don't want to harm more of small business.

Let's sit at the table, find places you close those loopholes, bring the president the more revenues he asked for. Republicans have put that on the table now, while keeping an economy able to grow. BLITZER: This new CNN/ORC poll that we just released today, is the GOP doing enough to cooperate with President Obama? Twenty four percent say yes, 70 percent say no. Politically speaking, it will appear to a lot of Americans you're simply trying to protect the rich.

MCCARTHY: Well, that's not the case when you see if we're trying to solve a problem. We put revenues on the table, started right off with that. The president says he wants a balance. Where are those 2.5 cuts for every dollar you take?

BLITZER: Are you ready to accept that two and a half for one spending cuts and tax increases in terms of revenue increases --

MCCARTHY: We provide the revenue already there. We're sitting at the table. That poll, if I recall correctly, also says 70 percent want to see the president offer spending cuts and work with Republicans even if it means going against his own beliefs.

BLITZER: What do you think about this idea of Lindsey Graham pitching 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 $1 trillion?

MCCARTHY: Well, those are different options that could be on the table. You can talk about and you would gain more revenue that way than raising the tax rates. But you have to sit at a table and start talking about it.

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

MCCARTHY: Well, I know the speaker's started from the very beginning after the election. He's been down to 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 2.5 times as much as you get if revenue.

That's what we need to start talking about. The president's offered nothing. We got three weeks ago. I haven't seen anything yet. Have you heard him talk about it?

BLITZER: He's talk about Medicare cuts or Medicaid cuts, entitlement --

MCCARTHY: There are loopholes in there that you can limit from all different prospects. But the thing you could find is we talk a lot about that revenue side, this whole conversation's been more revenue than where can we find the government cuts? That brings compromise. That brings a solution, but more importantly, that solves --

BLITZER: You want to raise the eligibility for Medicare from 65 to 67? MCCARTHY: Look, there are all sorts of things that could be on the table. That's all worth discussing. I think the American people want to see -- at the end of the day, you want a solution. Not to continue the problem.

BLITZER: Will there be a deal before December 31st?

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

BLITZER: Kevin McCarthy is the majority whip in the House of Representative, thanks for coming in.

MCCARTHY: Thanks for having me.

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

MCCARTHY: We'll be there.

BLITZER: An alarming accusation against the Syrian regime. Rebels' innocent children are being caught in the crossfire. What's going on here? We'll have a live report.

(COMMERCIAL BREAK)

BLITZER: Our next report contains disturbing images that may not be suitable for all audiences, especially for children. It comes from Syria where ten children are said to have been killed when a cluster bomb landed close to where they were playing. It's not the first alleged use of cluster ammunitions by the Syrian regime of President Bashar Al Assad.

CNN's Nick Paton Walsh reports it may be one of the most appalling.

(BEGIN VIDEOTAPE)

NICK PATON WALSH, CNN INTERNATIONAL CORRESPONDENT (voice-over): These disturbing images show what happens after a children's playground is hit, according to activists by a cluster bomb. Refugees with nowhere else to hide, apparently hit by a single deadly device dropped by a jet.

Some cluster bombs released smaller explosives to cause maximum devastation against softer targets. What do these children have to do with anything, Bashar, yells one man? At least 10 children killed according to activists who said they found the remains of the bomb around the tiny village.

CNN can't verify these pictures or claims cluster bombs were used, though human rights watch say activists images from the scene show cluster ammunitions. But activists say civilians have been hit before like the capture Sunday of this important air base not far away.

UNIDENTIFIED FEMALE: There is actually no logic at all attacking such a small village. This is what you got from us? Look what we're going to do? WALSH: The injuries to these children horrific, no matter what the device used. The toll on the youngest and easiest to kill is constant and unspeakable. Nick Paton Walsh, CNN, Beirut.

(END VIDEOTAPE)

BLITZER: The brutality in Syria continues. We'll have much more in our next hour on what's going on.

Meanwhile, nothing about North Korea should surprise any of us, but the discovery of a covert program to assassinate dissidents in the south is stunning. And the weapons are straight out of a 007 movie.

(COMMERCIAL BREAK)

BLITZER: North Korean spies certainly operate in the shad dose, but when we see what they're up to, the plots can be stunning. The latest was a plan to kill defectors in cold blood. CNN's Paula Hancocks was given this exclusive look.

(BEGIN VIDEOTAPE)

PAULA HANCOCKS, CNN CONTRIBUTOR (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 ballpoint pen. There is 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): These pens look like they belong in a James Bond movie. Is it new technology or is this quite old, quite basic technology?

UNIDENTIFIED MALE (through translator): These pen weapons are not new. North Korean spies have had this technology for about 10 years. But this flashlight is new. I've 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 (inaudible), 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 claimed he wanted to fund his activism. South Korean intelligence agents stopped him at the last minute.

UNIDENTIFIED MALE (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 Park the weapons intended to kill him. He hadn't seen them before in such detail and seemed shocked.

UNIDENTIFIED MALE (through translator): You would notice the gun, but these weapons are so innocuous, you could easily kill someone. I would have been killed instantly.

HANCOCKS: Park knows he's at the top of North Korea's hit list and has (inaudible) 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, CNN, Seoul.