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January 13, 2008

Giuliani on "Fox News Sunday"

Fox News Sunday

CHRIS WALLACE, HOST: I'm Chris Wallace, and this is "Fox News Sunday."

He started off the frontrunner for the Republican nomination. Now he's looking for a win. What does Rudy Giuliani need to do to regain his momentum? We'll ask the former mayor of New York in a "Fox News Sunday" exclusive.

Then, New Hampshire gives a boost to John McCain and Hillary Clinton. But what can we expect as both races head to Michigan, South Carolina, Florida and beyond? We'll ask our Sunday regulars -- Brit Hume, Mara Liasson, Bill Kristol and Juan Williams, all right now on "Fox News Sunday."

And hello again from Fox News in Washington. Well, with the primary races wide open in both parties, we continue our series "Choosing the President" today with an exclusive interview with former mayor Rudy Giuliani, who joins us from the campaign trail in Florida.

And, Mayor, welcome back to "Fox News Sunday."

RUDY GIULIANI (R), PRESIDENTIAL CANDIDATE: Thanks for having me, Chris.

WALLACE: You were the frontrunner for the Republican nomination for all of 2007, but that has changed dramatically in recent weeks. Let's take a look, sir.

The Real Clear Politics average of recent national polls now shows John McCain is leading, with you back in third place trailing by 10 points.

And even in Florida, which your campaign has always called its firewall, a poll came out this weekend that shows you in second place, trailing McCain by eight points.

So, Mayor, I've got a simple question. What happened?

(LAUGHTER)

GIULIANI: The race tightened up. It's a wide-open race. We have now several candidates that have won different primaries.

You get a great deal of momentum and bounce from winning, but the reality is, you know, we've got a good long campaign here in Florida that we've put on for quite some time. We've got a lot of time until January 29th.

We're conducting a major campaign here in Florida. We've had great crowds yesterday both places that we were at, tremendous enthusiasm.

And in fact, many people don't know this, but people in Florida have already begun voting. Absentee ballots have been cast. There's going to be early voting starting next week. So this is a state in which we're well organized and we believe we're going to win.

WALLACE: But doesn't what we just saw in the polls -- doesn't that raise serious questions about your overall strategy? The candidates who have won in the early states have the momentum while at the same time you're fading.

GIULIANI: Well, you know, everybody has to have a strategy that fits their strengths, their weaknesses, the places where they can get their message across the best, and we think this is the place for us to get our message across the best.

After all, this is a state that has a property tax resolution proposition on the ballot on January 29th. I'm the candidate who has had the strongest record as a fiscal conservative, the strongest record as a tax cutter.

We have just announced a program that everyone says is a very bold, creative program to reduce taxes, probably the biggest tax reduction in American history, and a program to simplify taxes so you can file your taxes on one page.

I have it here with me. Believe it or not, you can do it on one page. This is something that some of the people of Florida are very, very interested in, a way of simplifying your taxes so that you can do it on one page.

This will result in major tax reduction. A family of four here earning $80,000 will save something like $3,000. A family of four earning $120,000 will save something like $7,000 -- money in their pocket.

These are issues that resound in Florida and, quite frankly, of course, they resound all over the country. But you know, the way these primaries are working, you sort of have to pick a state where you can get your message across and crack through that way.

WALLACE: Mayor, we're going to talk in more depth about your tax plan and that one-page fast form in the next segment, but let's talk about money right now and your money, your campaign money.

We learned Friday that your senior campaign staff, about a dozen of them, are going to work without pay for all of this month. Isn't that a sure sign of a campaign with serious money troubles?

GIULIANI: No, no. That was a very generous gesture on the part of that group of people who wanted to make sure that, you know, every last penny was available for Florida, for what follows. It really isn't necessary.

The campaign has enough money to compete here in Florida. We don't know what the other campaigns have. We may have more than some. We're certainly competitive. We have enough money to get our message out. And a lot of this campaign is a grassroots campaign anyway, so that was a very generous thing.

I think it showed their support and loyalty to the campaign, but it really wasn't necessary.

WALLACE: Let's take a look at the financial situation of your campaign. At the end of the third quarter, in September, you had $11.6 million cash on hand for the primaries, but at the end of the year, you had $7 million cash on hand in the bank.

The way I look at that, you spent $5 million more in the fourth quarter than you raised, only to sink in the polls.

GIULIANI: Well, I mean, the reality is it got much more competitive there at the end with all of those primaries going on. We expected that to happen, Chris, and it happens in every campaign. You know, you go up. You go down.

It's a very competitive race -- asking me about the money. There's enough money to put on a competitive race here in Florida. It's going to be decided on who has the best message here in Florida or the best set of messages, who do the people in Florida think will be the most effective leader.

And I believe we will win when they ask those questions. I've had the most executive experience of any of the candidates in the race, having been, you know, mayor of New York City, having had to deal with crisis, having had to deal with difficult problems and getting results.

WALLACE: But despite what you're saying now, Mayor, you didn't always intend to wait for Florida. Back in November and December, you spent $3 million in advertising in New Hampshire, and then you pulled out of that state.

You said at one time that you were going to make a stand in Michigan and South Carolina. Now you've pulled all your paid staff out of those states.

So hasn't your campaign over the last few months been in a steady retreat?

GIULIANI: Well, the reality is as these primaries played out, certain people were very strong in some, and you had to look for the opportunity where you had the best chance to demonstrate your strength.

And it turned out that the analysis was that Florida was the best place for us to do it. Florida also comes on January 29th. It's kind of a gate opener to the February 5th primaries.

So you know, we're competing in Florida. We've already begun our campaign. We had great receptions yesterday in the places we went. We're going to be in a parade today.

We're going to be campaigning all over the state on a bus tour over the next three days. And this is just as early voting begins. So we've got a good strong campaign here.

And of course, you know, you've got to work really hard, but we believe it will succeed.

WALLACE: But what happened, for instance, in New Hampshire where you did seem to be making an effort in November? You did pour $3 million in advertising into it and then pulled out. Why did you make that decision?

GIULIANI: Well, what happened in New Hampshire is real simple. John McCain won a very good victory. He campaigned there for quite some time. He turned it all around. He won a big victory in New Hampshire.

WALLACE: But why did you pull out in November or December before he won a victory?

GIULIANI: We didn't pull out. We didn't pull out. What we did was we decided -- I can't remember exactly when it was -- January, December -- at some point we decided that we had to put our principal focus on Florida, that that was the best strategy for us, for all the reasons that I pointed out to you.

And you know, everybody's interested in the horse race, you know, among the reporters, but actually, people are more interested in who's going to be best in dealing with terrorism, who's going to be best in dealing with the economy, who's going to reduce taxes the most, who's going to bring us energy independence.

Those are the things that people are really interested in. And if you keep your campaign focused on that, you have a good chance of winning.

WALLACE: But let me ask you about trying to get your message out, because part of the problem is that you're not really in the conversation now.

You made a big speech in December in Florida with a new slogan, "Tested, ready now," but because all the other candidates were in Iowa, you got very little attention.

Then just last week -- and we're going to talk about it in the next segment -- you made a big speech with a new tax cut plan, but again, all the candidates were in New Hampshire, so again you got very little traction.

How do you get back in the conversation? How do you become a player again in this campaign?

GIULIANI: Well, no, I don't agree with you on the second one. I think the tax program got a good deal of attention. It certainly got a good deal of attention here in Florida.

It really was -- given the fact that we're focusing on this primary intended for Florida. And we'll have more announcements like that.

And the reality is that we're trying to get those messages through to the people of Florida, and we believe that they have gotten through.

WALLACE: Is it fair to say at this point, given all of this talk about Florida, that you have to win in Florida to stay in this race, sir?

GIULIANI: It's fair to say that it's a critical state for us, an important state for us. I don't think any candidate would ever say "have to," but if you want me to say it's real important, Chris, it's real important.

WALLACE: So you have a scenario where you could lose in Florida after putting all of your eggs in this basket?

GIULIANI: As I said, it's real important to win in Florida.

WALLACE: Mayor, even if you do win in Florida, it looks to us, looking at your campaign finances, like you'd be almost broke at that point.

How then do you go on to win in those 22 states that vote around the country just a week later on Super Tuesday?

GIULIANI: It wouldn't be terribly different than the other candidates, who all are going to have the same set of difficulties in fundraising. You've got to continue to fund raise, and you do well, and that jumps up your fundraising. And that's pretty typical of the way a lot of these primaries have gone.

WALLACE: All right, Mr. Mayor. We have to take a break here.

But when we come back, we're going to ask Rudy Giuliani about some of the key issues he thinks will turn his campaign around. Back in a moment.

(COMMERCIAL BREAK)

WALLACE: And we're back now with Republican presidential candidate Rudy Giuliani.

Mayor, the linchpin of your campaign is national security, that you are the Republican candidate best suited to win the war on terror. You have a new commercial out called "Ready." Let's take a look.

(BEGIN VIDEO CLIP)

NARRATOR: Leaders assassinated, democracy attacked, and Osama bin Laden still making threats. In a world where the next crisis is a moment away, America needs a leader who's ready.

(END VIDEO CLIP)

WALLACE: Mayor, if it is a choice of which Republican is ready on these issues, why not John McCain, who was the leading voice for years in terms of criticizing the way the war was being waged in Iraq and then was one of the primary voices behind what became known as the troop surge? GIULIANI: Well, as we pointed out in that piece there, I believe that I've been tested in a way that others haven't. I mean, I've had to deal with crisis. I had to deal with crisis in many different ways as mayor of New York City and have proven that I can and that I'm ready to do that.

I've had what some people regard as the second toughest job in the United States as mayor of New York City, and I had it during difficult times and had to get extraordinary results, and we accomplished that.

And then my history of dealing with violence, violent organizations, having the safety and responsibility of other people on my shoulders goes back even before being mayor of New York City, to being United States attorney, associate attorney general.

I think this prepares you for executive decision-making in a way that suggests that I would be a good president at this time, you know, being able to deal with the kind of things that terrorists may be throwing at us and then, of course, all of the other things that you have to deal with as a chief executive.

WALLACE: But it does come down, and any election does, to a choice. John McCain has been a leading voice on the front lines of the debate over national security for more than a decade now, not just on Iraq, but on the whole issue of torture...

GIULIANI: Right.

WALLACE: ... on the whole issue of military spending.

If the question is who is the strongest Republican candidate on national security -- you've talked about your credentials -- why not vote for John McCain?

GIULIANI: Well, I think, with all due respect, there's a difference between, you know, being one of 100, being a voice, and then actually being the decision-maker that day in and day out is actually on the line for making those decisions, so you can see the consequences of those decisions.

And that may be why Americans more often turn to people with executive experience, you know, people who have been governors or, in my case, mayor of the city that's as large or larger than most states.

WALLACE: Now, when he's asked about this, John McCain says that he was the head of the biggest squadron in the Navy, more than a thousand sailors. Your response to that?

GIULIANI: Great respect for John. He's someone who's accomplished a great deal, and he's a friend of mine and a hero.

I just believe that the executive experience that I have, which is more similar to the kind of background that most of the selections for president have been like -- I think that executive experience, where you're the person who is a decision-maker and, in my case, during times of crisis and difficulty -- and I'm not just talking about September 11.

I'm talking about a city that I actually had to turn around and accomplished turning around. I think that argues well in favor of someone, you know, having to deal with crisis in the presidency.

WALLACE: Besides the question of which job you held and which job John McCain held, are there any differences on policy?

GIULIANI: Oh, I'm sure there are, you know, but I think this is a question of people deciding who they think has the better experience, who they think is better able to handle this area.

And then, of course, it's never one thing. I also believe I'm the strongest fiscal conservative in the race. In having been an executive, I had to balance budgets. I had to figure out how to get spending under control.

I cut taxes more than anyone in government at the time that I was in government, which is sort of the core of the program that I'm now able to put together, which would be the largest tax cut in American history.

It's one that I think I can argue for more effectively than anyone else because things like this have worked for me in the past.

WALLACE: Let's talk about that tax cut because, as we mentioned, you did propose a big plan just this week, including -- and if you want to take it out again -- the one-page fast form for taxpayers. But I want to ask you...

GIULIANI: Here it is.

WALLACE: ... about an example that your campaign gave when talking about your one-page fast form.

You say that a family of four earning $80,000 a year would get a tax cut of 24 percent, but a family of four making $120,000 a year would get a tax cut of 36 percent.

So if I read that right, Mayor, your tax cut would help the rich more than it would the middle class.

GIULIANI: Well, it helps everyone. And it depends on the rates that you fall in. And in fact, the primary benefit are to people that are middle income. And we're just talking about the tax savings, I believe, from the fast form.

There are other benefits, other tax reductions, that would help balance that also. Let me explain the way we put these out. We put out a number of tax reductions.

As I've said, I'm going to fight for all of them. I doubt that all of them are going to pass, because you never get all the tax reductions that you ask for. I never did when I was mayor of New York City.

But I put out all the ones that I thought were the best. So to actually do a calculation of who benefits the most can only be done after you figure out which ones you can get through Congress, which ones are going to be approved, which ones are going to be adjusted. That was just to show the effect of the fast form.

And I should indicate with the fast form that that's also an option, meaning you can file the other form if you want to. So you have the option of doing it on one page with the key deductions maintained, or you can file the longer form.

And it might be that under the longer form you'll get more benefits if you want to take the time to do it.

WALLACE: Mayor, the big issue right now, of course, is the possibility that we may be sliding into an economic recession. Do you favor a short-term government stimulus package? And if so, what would you put in it?

GIULIANI: Yeah, favor. That's why I made the announcement that we should do tax cuts right now. I favor a program right now of doing three things: Strategic tax cuts that stimulate the economy, like cutting the corporate tax from 35 percent to 25 percent, which would be an immediate boost in jobs and, I think, investment in the United States.

Making clear that the investment tax -- you know, the capital gains tax, the dividend tax -- the Bush tax cuts are made permanent, particularly with regard to those areas that are sensitive to investment in the United States.

I would also immediately begin a program to reduce government spending, which we'll be talking about next week and the week after, to show confidence that we're returning to very, very strict fiscal discipline.

And then I would accelerate this whole effort to look at regulations so that America doesn't over regulate businesses and money out of the United States. Those three things have to be adjusted.

You can overtax, you can over regulate, and you can overspend to such an extent that you're hurting yourself on a competitive basis. Those are the things that I think are the core of a sound fiscal policy.

WALLACE: But, Mayor, let me just say that even if you passed -- even if you were president now and you put all of those in with the state of the union later this month, those wouldn't help in the short run. Those wouldn't help for a couple of years.

Senator Hillary Clinton, for -- let me just say Senator Hillary Clinton has just proposed a $70 billion package which would send money to the states to help stop foreclosures, help with heating oil, extend unemployment benefits.

She and some people at the White House are talking about tax rebates right now. I mean, that's the kind of short-term stimulus you need, isn't it?

GIULIANI: No. The kind of short-term stimulus you need is to present the picture, realistic picture, of an economy that's going to grow.

And then the private sector and the investment from the private sector -- the multiples of money that that would involve dwarfs anything that you're talking about.

Here, look at it this way. You're a business. You're making a decision about where to place your business, a business that you're going to have there for the next 20 years to 30 years.

You're looking at a picture of the United States of, you know, Democrats possibly getting elected, talking about raising taxes 20 percent or 30 percent, talking about building the central government, regulating more.

You look at another country where the corporate tax rate is considerably less than the United States. The other tax rates are going down. And they're talking about putting more back into the private sector. Where do you put your business? Where do you make your long-term investment? Where do you put your money? How do you evaluate the currencies? If the government in Washington presents the picture of immediately moving toward pro-growth policies, you have growth right away.

A lot of the movement of money, as you know, not just in markets but in general is a prediction of not just where the economy is today, but where the economy is going to be next year, the year after, the year after that.

So by announcing strong pro-growth policies, you can affect that decision, and that brings more liquidity. It brings more money. It brings more investment into your economy.

That's why the Club for Growth pointed out that my tax program would be one of the best things that you could do to strengthen the economy right now and create growth.

WALLACE: Mayor, we have only a few minutes left, and I want to talk to you about one last issue, which is immigration.

GIULIANI: Right.

WALLACE: You have a comprehensive plan that calls for building a fence, both a physical fence and a high-tech fence, to secure the border.

You also talk about immediately deporting any illegals who commit crimes, but that's still going to leave, by some estimates, 10 million people here. What would you do with them?

GIULIANI: What you would do is you would secure the border. You'd have the fence. The fence would stop people from coming in.

You'd set up a rule that to come into the United States, you have to identify yourself, which, after all, is no different than the rule in just about any other country.

You'd have a tamper-proof I.D. card. You'd get that working. And once it was working, what you would do is you'd deport the people who are criminals. You'd let the other people come forward who are here, who want to get fingerprinted, photographed, checked out, put on the rolls, paying taxes.

The people who didn't come forward you would focus on, and you would throw them out of the country. And you probably would also find that a number of those people that won't come forward will also leave.

WALLACE: But I want to...

GIULIANI: So your number -- well, let me just finish that, Chris. So your number -- what you've got to do with the, OK, 10 million here, 12 million here, is you've got to get that number down to a number that is deportable, that fits within a system that will deport them. At multiple millions like that, it's numbers that the government can't deal with. So if you get rid of the criminals...

WALLACE: But what will you do -- but what will you do with the ones - - let's say 8 million, 6 million, whatever -- who haven't broken the law, who are willing to pay taxes, willing to pay a fine? What do you do with them?

GIULIANI: You let them sign up. You let them get fingerprinted, photographed. You assure yourself that they're safe, decent people, that they're working, that they're now working on the rolls. You'll get the tax revenues from them. They will be paying their fair share.

And in essence, you create a self-selection process among those people. But you'll be doing it with the borders secure, with the borders now in a situation where more people can't come in.

If you try to do that before you secure the borders, your 12 million might become 16 million or 18 million.

WALLACE: But, Mayor, that sure sounds like amnesty for that self- selected group of people.

GIULIANI: Not at all. If they ever wanted to become citizens, they would have to get on the back of the line. They couldn't get ahead of anyone else. They would have to pay fines.

And then at the end of the road, anyone on any of these lists would have to be able to read English, write English, speak English. There would be substantial things that had to be done. Amnesty is being free and clear of all penalties of any kind.

WALLACE: But you wouldn't make them leave the country, would you?

GIULIANI: They'd have to pay a penalty.

WALLACE: But you wouldn't make them leave the...

GIULIANI: No. The way I would do it is the -- the way I would do it is the way I just suggested. I think that's the only way. In terms of the numbers you're talking about, and the ability of the federal government to actually get it done, that would really be the best way to get it done.

But critical to all of this, Chris, is you have got to secure the borders first. None of this can work if you don't secure the borders, because any kind of solution that you have for the people that are here, no matter how rational it is, would end up just having the problem run away from you if you don't secure the borders first.

WALLACE: Mayor Giuliani, we're going to have to leave it there. We want to thank you so much for coming off the trail and talking with us today. And safe travels, sir.

GIULIANI: Thank you, Chris. Thank you very much. WALLACE: Coming up, are Bill and Hillary Clinton playing the race card against Barack Obama? Our Sunday regulars take a look at that explosive charge when we come right back.

(COMMERCIAL BREAK)

(BEGIN VIDEO CLIP)

H. CLINTON: I would point to the fact that Dr. King's dream began to be realized when President Lyndon Johnson passed the Civil Rights Act of 1964.

(END VIDEO CLIP)

(BEGIN VIDEO CLIP)

B. CLINTON: Give me a break. This whole thing is the biggest fairy tale I've ever seen.

(END VIDEO CLIP)

WALLACE: Those comments from Hillary and Bill Clinton got them in hot water this week with some African American leaders.

And it's time for our Sunday group, all back from our road trip -- Brit Hume, Washington managing editor of Fox News, and Fox News contributors Mara Liasson of National Public Radio, Bill Kristol of The Weekly Standard, and Juan Williams, also from National Public Radio.

And let me just say before we begin that what happened in Myrtle Beach stays in Myrtle Beach, OK, everybody? All right.

Some African American leaders, as we say, got upset with both Clintons this week -- at her for that comment in an interview with Major Garrett in which she seemed to suggest that Lyndon Johnson was more important to the civil rights movement that Martin Luther King was; at him for that comment, which you need a little explanation, in which he seemed to be dismissing Obama's campaign as a fairy tale.

It got so bad that Bill Clinton went on several black radio talk shows this week to say no, he wasn't saying that the Obama campaign was a fairy tale, just Obama's claims that there was a big difference between him and Hillary Clinton on Iraq.

So, Brit, what do you make of all this?

HUME: Well, it shows you what a difficult and delicate thing it is to run against this man, Obama. I don't think Hillary Clinton meant to denigrate Dr. King in any way, and what she said about the role of Lyndon Johnson was a perfectly reasonable comment.

One is that someone has to inspire, and somebody else may be needed to execute the program. And Johnson certainly was a pivotal figure in that. All of that is true.

And Bill Clinton was talking about some aspect of what Obama had been saying, his argument that he said was a fairy tale, not his entire candidacy. That was not the context of it.

Neither of those comments was, in my view, racial, but it was taken that way in a constituency that Hillary Clinton cannot afford to trifle with.

And she was able to win New Hampshire by piecing together the key elements of the old Democratic coalition. African American voters are critical to that. She needs to hold that coalition together, and she needs to cut into his share of the African American vote, which is likely to be very high.

As these two incidents suggest, criticizing him on issues of interest of those people is a very tricky business.

LIASSON: And she was taken to task by no less than Jim Clyburn, who is kind of the dean of South Carolina politics, and...

WALLACE: We should explain. He's, I think, the number-three man...

LIASSON: He's the number-three man...

WALLACE: ... in the House leadership.

LIASSON: ... in the House of Representatives. He is the most important black politician in South Carolina.

HUME: And he was a Hillary backer.

WALLACE: No, no. He was.

LIASSON: No, he has not endorsed, but he's been very favorable to her. But he has not actually officially endorsed yet. And he gave an interview to the New York Times and issued a statement later where he was quite critical and gave them, the Clintons, a warning about how they have to be very careful about how they talk about the civil rights era. And I thought that was pretty significant.

Her goal in South Carolina is to get about 45 percent of the black vote. If she can -- don't forget, Bill Clinton is very, very popular among especially the older generation of black ministers down there.

What these comments are going to do to their standing is unclear. Apparently, it's been burning up the black talk radio airwaves.

And the problem is that, as Brit said, she's looking for every point of purchase she can get to make a criticism against Obama, and when he started talking -- she's been criticizing him for raising false hopes.

And of course, he came back by saying did Martin Luther King raise false hopes, did JFK raise fall hopes. And her comment about Lyndon Johnson was the next iteration of that debate. And I think she's on thin ice there.

KRISTOL: I think actually -- well, Hillary Clinton won the New Hampshire primary. She won the New Hampshire primary because she and her husband began criticizing Barack Obama, I think, and made some Democratic voters think, "Gee, he sounds good, but could he deliver?"

You can't win a campaign without criticizing your opponent. What they said was totally within the bounds -- I mean, I myself am not a huge fan of the Clintons, and I've found Obama's campaign more interesting, but I've got to say it's ridiculous to pretend that there was anything racial about those comments, in my view.

And it's not clear to me that anyone got upset, except people who like to get upset, you know, Al Sharpton and people like that. And it's not clear to me that this hurts them.

And I think, in fact, the Clintons did a pretty effective job over the week -- five days between Iowa and New Hampshire of getting out there the notion that he's impressive guy, Barack Obama, sounds great, but does he really have the experience to be president of the United States.

WILLIAMS: Well, you know what? I think in this country there's a history of playing racial politics, and when you hear people like Billy Shaheen talking about drug use in his past, and when you hear Andrew Cuomo in New York State talking about, you know, Barack Obama...

WALLACE: Shuck and jive.

WILLIAMS: ... can't shuck and jive...

WALLACE: Now, wait. Wait. In fairness, because I was going to bring this right up, Andrew Cuomo, the attorney general of the State of New York and a Clinton supporter, said that candidates -- he wasn't talking specifically about Obama, but he said candidates can't shuck and jive their way through the campaign -- but clearly a racially charged comment.

WILLIAMS: Yeah, and it was in the context of a larger discussion about Obama and Clinton and what Obama had said afterwards.

So when you hear those kind of comments and then, you know, you start to think, "Wait a minute, what's going on," and then all of a sudden -- and this is a real sensitive point.

And it's absolutely right, as you've said, that you can't imagine the civil rights bill taking place without President Johnson. But to absolutely take away the agency, the idea of power, from black people -- that, in fact, there was pressure being put on the Congress, on President Johnson, by tremendous efforts at appealing to America's conscience by Martin Luther King Jr. -- to somehow make him a lesser in that deal, I think a lot of people -- wait a minute, what are you doing?

Clearly, the Clintons know how to play racial politics. Think back to Sister Souljah. Think back to the way...

WALLACE: Explain that.

WILLIAMS: Sister Souljah was an incident in the Clinton campaign when he made a strong statement about her type of music presentation, to make it clear that he was not somehow, you know -- he was not beholden to the black community, that he could at times, when necessary, distance himself from black cultural figures like this woman, this musician, at a key moment to make a statement to white America.

I'm just saying racial politics is a reality. Now, Stephanie Tubbs Jones, a congresswoman from Ohio, said yesterday she thought this was a tactic by the Obama campaign, very intentional.

And don't forget that...

WALLACE: About the Obama campaign, what, to...

WILLIAMS: To use race to appeal to black voters and distance them from Hillary Clinton.

And there's now, you know, reports of an actual memo listing all these events being circulated quite intentionally by somebody who's trying to hurt the Clinton campaign.

So it's not as if there are any clean hands in this race. But racial politics in America -- goodness gracious, you'd have to be blind not to understand it.

WALLACE: Well, let me ask you directly, Juan. I mean, when you -- because I was struck when I -- and I was unaware of it until I saw this memo that -- we don't know where it came from -- reported yesterday in the Washington Post.

When you have Andrew Cuomo, the son of Mario Cuomo, talking about shuck and jive in a campaign, when you had Billy Shaheen talk about cocaine use, when you had Mark Penn, the chief strategist for the Clinton campaign, say, "Well, we're not going to bring up cocaine use," do you see -- do you believe that there is an effort, a conscious effort, by the Clinton campaign and their surrogates to play the racial card?

WILLIAMS: Yeah, sure, there's a -- look. I don't think there's any question -- this touches back on what Brit said, I think very accurately, you've got to bring Obama down to ground, and you've got to take away -- when you go to an Obama event, as I've been going to, it's a Hannah Montana revival for all these young white kids.

They think their history is being made, and they're present, and they've come back, and Bobby Kennedy's -- you've got to bring -- OK, so you start talking about abortion. Where was he? Is he voting "present"? Is he there?

You start talking about gun control. Where is he on the issue?

WALLACE: Well, those are issues. That's different.

WILLIAMS: Right. But then you also start talking -- wait a minute, Obama says at one point in his speech -- he says, you know, there are going to be all these nasty calls that say don't forget this guy's name is Obama. He never says, "Hey, don't forget this guy's black."

I think the Clintons totally want to remind people this guy is black.

HUME: But, Juan, isn't it dangerous for a Democrat seeking to hold the old Democratic coalition together to mess around with the race issue at all?

I mean, don't you think that this is a very risky -- I mean, your view, she was going to have to overwhelm Obama's black support with white votes -- that's what you're saying -- in the party which is mostly liberal and deeply sympathetic to African Americans.

It seems to me that if that's their strategy, to take him down on the race question, this may be the most clumsy and foolish thing that the Clinton camp could do.

WILLIAMS: Well, don't you think -- I think -- Brit, I think it -- I don't know about clumsy. I thought a lot of it was code language -- shuck and jive, the cocaine business. I think a lot of it was code language.

And don't forget, when we look at the poll numbers coming out of New Hampshire, what we see is that it was working-class white women and men who were overwhelmingly in support of her.

It's, you know, what people call derisively the white wine and brie crowd that's all for Barack Obama, the knowledge class of white people.

HUME: Well, that's true, Juan. That's true, Juan, And under ordinary circumstances -- and we've seen this happen in Democratic primaries past, where the candidate with new ideas and freshness and all that eventually loses out because the old Democratic coalition holds together.

The problem is that African Americans are a key part of that. African Americans saved Walter Mondale's bacon when he headed into Super Tuesday 24 years ago in Alabama and Georgia...

WILLIAMS: And saved Bill Clinton on Monica Lewinsky.

HUME: Exactly. So if they mess around with this, aren't they in danger of alienating a constituency that could deprive Hillary Clinton of the nomination?

WILLIAMS: Yeah, and I think both...

KRISTOL: But they're not. Wait a second. This is some political talk, but let's -- I can't believe I'm going to defend the Clintons here, but I'm going to defend the Clintons.

We should not let it become an...

WALLACE: You're just trying to appeal to the New York Times writers. But go ahead.

KRISTOL: Yeah. It should not become an object of agreement here, or assumed agreement, that the Clintons are rationally bigoted.

WILLIAMS: I didn't say that.

KRISTOL: Well, wait. Wait. You have just said they are playing the race card.

WILLIAMS: No.

KRISTOL: Do you believe Bill and Hillary Clinton are knowingly appealing to voters to vote against Obama because of his race?

WILLIAMS: I think they're reminding people of race. I don't think they are bigoted.

LIASSON: Do you know what it is with the Clintons?

WILLIAMS: That's not the equivalent of bigoted.

KRISTOL: What do you mean it isn't the equivalent of being bigoted? Asking someone to vote against someone else because of his race is a bigoted thing.

LIASSON: You know what? You know what?

KRISTOL: And I just think it's unjust. It's unjust.

WILLIAMS: I don't think the Clintons are...

KRISTOL: They've been campaigning...

WILLIAMS: I don't think that at all.

LIASSON: You know what it is, the thing about the Clintons? I always say this. They always use two sets of brass knuckles when one will do just fine.

WILLIAMS: There we go.

LIASSON: I think it's in their kind of...

KRISTOL: Oh, come on.

LIASSON: ... their kind of zeal to...

KRISTOL: This is brass knuckles?

LIASSON: No, no, no. What I think is that...

KRISTOL: This is the tamest stuff.

LIASSON: What I'm saying is that I think they sometimes go over...

HUME: It doesn't take much, though.

LIASSON: Sometimes, in their zeal to find something to make the point that he's all air and just beautiful speeches and no substance, they sometimes can go too far.

KRISTOL: What went too far?

LIASSON: I do think that Bill made...

KRISTOL: What went too -- here I am defending them. What went too far, saying that...

LIASSON: I think to suggest...

KRISTOL: ... it's a fairy tale? That's such a harsh statement?

LIASSON: No, no, no. That had nothing to do with race. Fairy tale was about Iraq.

KRISTOL: OK.

LIASSON: I'm talking about to suggest that somehow Martin Luther King couldn't get it done, and that she's somehow like Lyndon Johnson, and all Barack Obama is is someone who can give a nice speech.

But I want to come back to an earlier point Bill made, because it was a good one. The legitimate point that the Clintons did make about Obama in New Hampshire was this "where's the beef" question. And I think that he was running out the clock in New Hampshire. He came into New Hampshire with a huge lead. He thought all he had to do was kind of give the same inspiring speech over and over again.

She, meanwhile, scared to death, you know, answered questions for two hours at a time, you know, pulled everything out of herself that she could. He needs to start doing that more in these upcoming contests.

WALLACE: All right. We need to take a break here.

But when we come back, we'll turn to the Republicans. Who's the favorite going into Michigan and South Carolina, and who has to win which state? Some answers when we come right back.

(COMMERCIAL BREAK)

WALLACE: On this day in 1966, President Johnson appointed the nation's first African American cabinet member. Robert Weaver was named secretary of the newly created Department of Housing and Urban Development.

Stay tuned for more from our panel.

(COMMERCIAL BREAK)

(BEGIN VIDEO CLIP)

MCCAIN: We won New Hampshire. We'll win Michigan. We'll win South Carolina. We will win the nomination. And I will be the next president of the United States with your help.

(END VIDEO CLIP)

WALLACE: That was John McCain on the campaign trail after his big win in New Hampshire.

And we're back now with Brit, Mara, Bill and Juan. Well, what a difference a win in New Hampshire can make.

Brit, is John McCain now the frontrunner for the Republican nomination?

HUME: Arguably, he is the frontrunner. And of course, you know, he stands well in Michigan, where Mitt Romney has made a big bet and probably staked his campaign.

McCain, if he wins Michigan, will be the frontrunner. If not, then you have a -- still have a wide open race.

Michigan has emerged, kind of out of nowhere, as a very big deal on the Republican side, because Mike Huckabee's out there, and he's the other guy with a toehold in this race, and he has a real chance there.

So this Tuesday event in Michigan is going to tell us an awful lot.

WALLACE: Mara, is John McCain the frontrunner?

LIASSON: First of all, I don't think there is a real frontrunner in the Republican race, but he's the frontrunner for the moment. I guess you could say that.

You know, he definitely got a boost -- a bounce out of New Hampshire. He did go up to the top in some of the national polls where he hasn't been in a very, very long time.

But I think that he has true momentum. In other words, his bounce in the polls is based on momentum. He has to keep that going. I agree with Brit. I think he has to win Michigan to show that he's more than just the king of New Hampshire. You know, he's done that before.

He also needs it because he needs resources, and he needs all the boost that that's going to give him going into South Carolina.

KRISTOL: Mara made a very good point on the first segment about Obama and New Hampshire. He thought his momentum from Iowa would just carry him. We all thought that there was a wave behind him.

It turned out the voters of New Hampshire took their own look, and some of them had second thoughts, and it was a close race anyway, and Senator Clinton won narrowly.

I think right now, if you look at what's happening in Michigan -- I tried to go -- you know, we're not there, but I tried to go online and look at the ads that are up on T.V. -- I think Senator McCain might be making the same mistake in Michigan that Obama made in New Hampshire.

It's a lot of coasting -- you know, look at the endorsements, look at the momentum I have. In New Hampshire he ran a very substantive campaign. He talked a lot about the war. He talked a lot about being commander in chief. That's not his message in Michigan.

Romney is up with an economics message, a tax cutting message, attacking the Democratic governor of Michigan who raised taxes, for throwing the state into a one-state recession.

Michigan's unemployment rate is 7.4 percent. It's the worst by 1 percentage point. No other state's above 6.4 percent. Romney's running a pretty strong, I think, campaign on economics in Michigan.

McCain I think -- McCain runs great when he's behind. I think maybe his campaign is coasting a little bit, and I think Romney could win Michigan.

WALLACE: Before I bring in Juan, why do you think McCain -- I mean, because we don't to slough over the fact that he did win New Hampshire, and the fact was that we all left him for dead this summer. He was out of money. He had to fire most of his campaign staff.

How has he turned things around, whether he's going to win Michigan or not, that he's even in this position?

KRISTOL: The surge. The surge. McCain advocated the surge, defended the surge. It was unpopular. People thought it would -- two-thirds of his own campaign wanted him to abandon his position on Iraq.

He stuck with it. He showed guts. He showed intelligence. The surge is now working very, very well. And McCain... HUME: And Republicans like the surge.

KRISTOL: ... Republicans like it.

LIASSON: And he held 102 town meetings.

KRISTOL: No, that...

LIASSON: He worked his butt off.

KRISTOL: He worked his butt off, too, but I don't think it would -- that would not have mattered. He could have had town meeting after town meeting, and if many voters had thought not only was it perhaps a mistake to have gone into Iraq, but then we didn't change strategy effectively, it would have been disastrous for McCain.

So he was identified with the surge. He is the most credible commander in chief. That's what won for him in New Hampshire.

In Michigan, if you look at the polls, it's interesting. Voters who say the war in Iraq is the most important issue in the polls out today in Michigan are for McCain 2-1.

Voters who say the economy is the most important issue are for Romney 2-1. Right now, a few more voters in Michigan think the economy is the more important issue.

McCain has to remind people that they're not just voting -- you know, the economic differences aren't that great among the candidates, and he's got to remind people that he's the most able to be commander in chief.

WILLIAMS: Well, I think that McCain is likely to win Michigan, I think in large part because he's going to get those crossover votes, those independent votes.

Barack Obama is not on the slate of ballots of candidates there. It's basically Hillary Clinton. And the whole attack on the governor and the whole appeal in terms of the taxing, I think, is not going to work, because the state is in financial difficulty.

And they like the appeal that John McCain says, "I'll tell you straight those jobs aren't coming back. Here's how we can plan for the future." I think that's what's appealing about McCain.

WALLACE: Brit, let's sort out the other candidates. Mitt Romney has not said that he has to win in Michigan. In fact, that was a misquote of his. He was really talking about that they have to win in terms of keeping jobs in Michigan.

But a lot of people think he does have to win in Michigan. Does he?

HUME: Well, he did say if I can't win in Michigan, I can't win anywhere. WALLACE: No, we actually looked at the whole quote, and he was really talking about jobs in Michigan, not -- it was a misquote. But the question is what...

HUME: I heard him say the words.

WALLACE: We checked -- I know, but he was talking about jobs. He was not -- he was talking about the fight for jobs, not about...

HUME: I take your word for it.

WALLACE: OK. We'll show you the tape afterwards. In any case, does he have to win in Michigan?

HUME: Well, you know, look at -- if you look at it on paper, you've got sort of a three-way race among people who have won somewhere and lost somewhere.

Romney has a little win in Wyoming and two reasonably solid second- place finishes. Huckabee's got a win in Iowa and losses elsewhere -- third place, in fact, in New Hampshire. Same for McCain, who finished out of the money, basically, in Iowa, wins New Hampshire.

And so they all look to be on equal footing, but they're not. The people who have won have a leg up, and Romney has a decision to make, it seems to me.

Even a close second in Michigan may not be enough, because he's got to decide whether it's worth continuing to spend out of his own pocket the amounts of money it would take to continue to compete.

And he's already spent, you know, upwards -- it is believed, upwards of $30 million. That's a lot of money, even for a really rich guy. And I think that that's what it will come down to for him. He's a hard-headed businessman, and it seems to me he's got a call to make on that.

Huckabee is a factor in Michigan and a factor in South Carolina, and I think, you know, he's been able to run a pretty effective campaign with not a lot of money. It seems to me he'll be around for a while.

And McCain -- I don't know what will happen to McCain if he doesn't win either of these next two states, Michigan or South Carolina.

WALLACE: Mara, let's move on to South Carolina, which is a week -- well, is actually next Saturday. Is it win or else for Fred Thompson there?

LIASSON: Yes, I think so. But the interesting dynamic down there will be there's a whole bunch of candidates splitting that social conservative vote.

You know, if Romney survives, he's vying for that vote, Huckabee, Thompson, and then, you know, you have McCain, perhaps, you know, filling a niche where he doesn't have a lot of direct competitors.

But yes, I think South Carolina is it for Fred Thompson, and I think he's pretty much acknowledged that.

KRISTOL: Yeah, I think Romney has to win Michigan to stay in, I think, on Tuesday. Thompson has to win or be very strong in South Carolina Saturday to stay in. And Giuliani probably has to be win or be very strong in Florida a week from Tuesday to stay in.

So they're all facing single elimination, and the voters so far in this campaign have tended to not want to kick candidates out of the race.

I think it's maybe helping Romney in Michigan. You know, he's a hometown, home state guy, and I think there may be a little sentiment of, you know, if you're wavering, vote for Romney, keep him in the race. It's not going to elect him, by any means.

McCain will certainly stay in with a strong second, and I think will be in pretty good shape going into South Carolina. So I wonder if that's helping a little.

The voters don't seem to want to kick these guys out the way they -- the Democrats didn't want to with Senator Clinton in New Hampshire. The Republicans may not want to in Michigan.

WILLIAMS: Well, it's nice to know Republicans have a heart, Bill, but I don't think that Mr. Romney is going to survive Michigan, and I don't think that Mr. Thompson is going to survive South Carolina. The polls just don't show it.

It would have to be some late surge of support for them. And I think that Romney has been around this track and so has McCain, and McCain won -- remember, back in '08, McCain surprised Bush in Michigan.

And I think this whole independent vote is very angry and upset, and they're not going to go with a guy who looks like a businessman over John McCain at this point. You know, Romney likes to say, "Oh, McCain is a senator. He's been there forever. How are you going to change Washington?"

But I think people see McCain as more of a change agent than they'll ever view a big businessman like Romney.

WALLACE: All right. Let's talk about our guest for the first half of this program, Rudy Giuliani.

Brit, what's happened to his campaign? How do you explain the slide in the polls? And do you -- and I'll ask everybody else. Does anybody think this Florida strategy is going to work?

HUME: I don't see any reason why it can't work. Obviously, early state momentum counts for a lot. You get tremendously good publicity, and lots of it, worth more than you could probably afford to spend to get that kind of publicity by advertising. My sense about it is he has a real shot in Florida, but he has paid a frightful price for the fact that he didn't really play effectively in any of the first few contests. You've got to do that if you're going to win.

And it also proves how meaningless the national polls have been up until now. I mean, you know, he has a steady lead in the national polls. It continues for more than a year, or whatever it is. Then they start voting, and he loses, and they say no, he's not leading. I mean, it's just...

WALLACE: Mara, let's get -- we've got a couple of minutes left. Let's get really ahead of ourselves here and throw all of those candidates out and say that this comes down to a race between McCain and Huckabee, which at this point, I guess is probably -- well, I mean, that would be, I guess...

LIASSON: My favorite fantasy.

WALLACE: ... the conventional wisdom at this point, and we're...

LIASSON: Well, it could happen.

WALLACE: So if that happened, how would that play out?

LIASSON: Well, look. You know, just as a journalist, a spectator, I'm waiting for that, because then you would have the two brokest, funniest, iconoclastic Republicans left standing, and the Republican Party, I think, the establishment, and the coalition would have to go into therapy and figure out which one it could handle more.

I mean, I think McCain would clearly be the rallying point. I think Huckabee is much more unacceptable to Republicans than McCain.

HUME: Don't underestimate the Huck.

LIASSON: Yeah. But I think that would be an incredible race. Plus, they like each other. They have not -- I think they've both said this would be a very civil campaign. There are real differences between them.

That would be an amazing thing to happen in the Republican Party.

KRISTOL: I think it's the most likely, right now, outcome, though obviously it's extremely uncertain, the McCain-Huckabee showdown on February 5th and afterwards.

I think a lot of the conservative establishment, Republican establishment, would have to go into therapy, as Mara says, but it would be a healthy therapy. Because you know what? If the voters want what McCain is saying or what Huckabee is saying, why don't you listen to the voters?

And maybe conservatives need to learn something from both McCain's message, especially, I would say, on foreign policy, and to some degree from Huckabee's message, both the social conservatism and the kind of economic populism which can veer into foolish policies at times.

But there is some truth to the notion that, you know, paying a -- what the Republican Party has been about, at its best, is upward mobility for the middle class and the working class, and maybe that needs to be focused on a little more.

LIASSON: We're going to hear a lot about Sam's Club Republicans.

WILLIAMS: Yeah. Old line Republicans really will need therapy, because Huckabee and McCain have not been their candidate at any time.

WALLACE: Thank you, panel. See you next week.

Time now for one viewer e-mail about last week's show.

Johnny Concannon from Massachusetts writes, "I wish all political interviews were as tough and fair as yours on Sunday. If only more Democrats would enter the "Fox News Sunday" arena. Well, it's a new year, so I can hope."

And, Johnny, we're also hoping that Senator Obama will finally live up to his rhetoric about moving past the old partisan divides.

Be sure to let us know your thoughts by e-mailing us at fns@foxnews.com.

Up next, the week's sights and sounds on the campaign trail.

(COMMERCIAL BREAK)

WALLACE: We're barely into the actual voting of 2008, and already five different candidates from both parties have won a primary or caucus.

Take a look at the fast-moving events of this remarkable week on the trail.

(BEGIN VIDEO CLIP)

(UNKNOWN): Hey, mayor.

(UNKNOWN): Mayor.

(UNKNOWN): May I have your vote today?

(END VIDEO CLIP)

(BEGIN VIDEO CLIP)

H. CLINTON: This is very personal for me. It's not just political. It's not just public. I see what's happening. And we have to reverse it.

(END VIDEO CLIP)

(BEGIN VIDEO CLIP) CROWD: Romney! Romney! Romney!

(END VIDEO CLIP)

(BEGIN VIDEO CLIP)

(UNKNOWN): Push it in, pal.

(UNKNOWN): Give it a little tap. Good job.

(END VIDEO CLIP)

(BEGIN VIDEO CLIP)

MCCAIN: I'm past the age when I can claim the noun "kid," no matter what adjective precedes it. But tonight we sure showed them what a comeback looks like.

(END VIDEO CLIP)

(BEGIN VIDEO CLIP)

H. CLINTON: Over the last week, I listened to you, and in the process, I found my own voice.

(END VIDEO CLIP)

(BEGIN VIDEO CLIP)

ROMNEY: I always thought some day I'd be in the car business. Well, now I think I could do more to help the car business and help Michigan by becoming a president.

(END VIDEO CLIP)

(BEGIN VIDEO CLIP)

JOHN KERRY: Barack Obama can be, will be, and should be the next president of the United States.

(END VIDEO CLIP)

(BEGIN VIDEO CLIP)

HUCKABEE: But we know we've got to come out into South Carolina with a win, and we expect to.

(END VIDEO CLIP)

(BEGIN VIDEO CLIP)

RICHARDSON: I am ending my campaign for president of the United States.

(END VIDEO CLIP)

(BEGIN VIDEO CLIP)

EDWARDS: And I'm in it for the long haul.

(END VIDEO CLIP)

(BEGIN VIDEO CLIP)

THOMPSON: On the other hand, you have the direction that Governor Huckabee would take us in. He would be a Christian leader, but he would also bring about liberal economic policies.

(END VIDEO CLIP)

WALLACE: Mount Myrtle Beach. And we've still got 23 days until Super Tuesday.

But that's it for today. Have a great week, and we'll see you next "Fox News Sunday."

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