CHRIS WALLACE, HOST: I'm Chris Wallace.
Two big states up for grabs Tuesday. It's the next big test to the Republican race for president.
Mitt Romney fights for his political life on his home turf of Michigan, as well as in Arizona. We'll hear from the candidate fighting to regain his status as the front runner. Mitt Romney, only on "Fox News Sunday."
Then, he's one of the country's leading governors with an unmatched fiscal record. So, how would the man from Indiana put people back to work? We'll ask Republican Governor Mitch Daniels.
Plus, will pain at the pump become pain at the polls for President Obama? We'll ask our Sunday panel how rising gas prices will affect the presidential race.
And our power player of the week offering adventure on the Internet.
All right now on "Fox News Sunday."
And hello again from Fox News in Washington.
On Tuesday, voters go to the polls in Michigan and Arizona for what may be the most important primary day so far.
Joining us now from Flint, Michigan, is Governor Mitt Romney, who's got a lot riding on both contest. And, Governor, welcome back to "Fox News Sunday."
MITT ROMNEY, REPUBLICAN PRESIDENTIAL CANDIDATE: Thanks, Chris. Good to be with you again.
WALLACE: Before we get in to politics, I want to ask you about the latest crisis in Afghanistan. As you know, U.S. and NATO forces are being pulled out of all of the Afghan ministries there because two top U.S. military advisers were killed as part of the continuing furor over the burning of the Korans.
The question I have is what does that say to you -- pulling our forces out of the ministries, what does that say to you 10 years after the war began and the nature of our alliance with the Afghans?
ROMNEY: Well, it's an extraordinary admission of failure for us to establish the relationships that you'd have to have for a successful transition to the Afghan military and Afghan security leadership. I hope that we're going to see some improvement very soon. But it's obviously very dangerous there and the transition effort is not going as well as we'd like to see it go. But certainly, the effort there is an important one, and we want to see the Afghan security troops finally able to secure their own country and bring our troops home when that job is done.
WALLACE: Do you still oppose President Obama's decision to start pulling out U.S. troops from Afghanistan this year? And what do you think of his earlier apology this week to the Afghans for the burning of the Koran?
ROMNEY: Well, first of all, with regards to the apology, I think for a lot people, this is it sticks in their throat, the idea that we are there, having lost thousands of individuals through casualty and death. We've made an enormous contribution to help the people their achieved freedom and for us to be apologizing at a time like this is something which is very difficult for the American people to countenance.
At the same time, you know, I'm very concerned about the pathway forward. I think the president made an enormous error by announcing the withdrawal date of our surge forces during the fighting season. This is the time they are supposed to come out. He should have waited for at least three months until things quieted down.
And secondly, the announcement is win to the combat forces are going to be withdrawn and combat operations were over. It's one thing to make those plans internally. It's another thing to announce them to Taliban and to Afghanistan and to the Afghanis.
And finally, to announce a specific withdrawal date before you have the input from those who are on the field I think is another mistake.
This president has made it more for the fighting men and women to be successful in our mission in Afghanistan.
WALLACE: But just to make it clear, Governor, you're saying then that despite the killing and in some cases inside job killing of American soldiers, you would continue your commitment to winning the war in Afghanistan?
ROMNEY: Well, what we want to do is to transition Afghanistan such that its own military and its own security forces can maintain the sovereignty of their government from an attack for the Taliban. We don't want to see Afghanistan once again return to a Taliban- dominated nation with al Qaeda and other training camps coming into the nation.
We're -- that is a mission which is continuing, and based upon what we are seeing so far, we haven't been as successful as we could have been. And I think one of the reasons for that is the president didn't insure the elections were fair and open, with credible being selected. The president also announced the withdrawal date, a time certain which I think made it very clear to the Taliban they just had to wait us out.
I think the president has made some enormous errors in the conduct of our mission there.
WALLACE: Four years ago, you won Michigan by nine points over John McCain. But in the latest "Real Clear Politics" average of polls there, you are barely -- barely beating Rick Santorum.
Why are you having such a tough time locking up your home state against Rick Santorum?
ROMNEY: Well, I'm proud of the fact that I was born and raised in Michigan. And, you know, last time when I ran here against Senator McCain, I think started off eight points behind in the polls, with two weeks ago and was able to fight very hard, earned every vote, and ended up winning, as you point out.
About 10 days ago, I think Rasmussen had me down 15 points in Michigan. Now, it's tied or slightly ahead. I think I can show that I can fight real hard and come from behind. And I think the people, as they focus on my campaign and my candidacy and my plan to get America working, a plan that calls for dramatic changes in the way Washington is structured -- those are things that I think people are warming to and making progress.
WALLACE: Well, you say you're making progress. You don't have much time. The vote is Tuesday.
Flat question, are you going to win Michigan? And secondly, even if you do, isn't this nomination battle going to go on at least until May?
ROMNEY: Well, I'm planning on winning here in Michigan and also in Arizona. Obviously, that will be huge for us if we're able to do, particularly having come from so far behind here in Michigan. So, we are planning on winning. We're making -- obviously, the momentum is in the right direction. We've cut the lead down and now, we're tied, we're slightly ahead.
Some polls show us more ahead than slightly. We'll see what happens in the remaining days.
But how long the process goes on, I think it's hard to predict. But I'm convinced I'm going to become the nominee, and we'll be willing to take however long it takes to get that job done.
WALLACE: One problem that you have in Michigan is that you opposed the government bailout of Chrysler and General Motors. You say that the companies eventually through bankruptcy, which is what you advocated all along. But critics say there is a problem with that.
And let me point that out. With government money, the two companies, Chrysler and G.M. went through Chapter 11 reorganization, which was faster and easier. Without government money, they would have gone through Chapter 7 liquidation which the company say would have cost thousands of jobs and critics say one of the reasons they needed the government money is because private companies refused to give them money, including your old company Bain Capital.
ROMNEY: Well, actually, I know the Obama people are pushing that story very hard. But if we go back in history, the 2008, when the CEOs of these companies went to Washington asking for, what, $50 billion, I said, don't give them the money. Instead, have them go through a managed bankruptcy. And if need help after that bankruptcy, then the government can help with guarantees and guarantees on warranties and so forth.
So, the money and the support, that comes after they've gone through bankruptcy.
What the Obama people and, by the way, the Bush team did the same thing. They started writing checks until they finally realized I was right, these companies needed to go through managed bankruptcy. When they finally got that done, they were finally able to get their legs underneath them and now, I'm delighted to see these companies back and thriving.
And I've laid out a plan I think to get these companies to be not just the Motor City of America, but the Motor City of world.
WALLACE: But, Governor, to follow up on that -- there are a number of people, a number of top leaders in Michigan who say you are wrong, that without the money up front -- which they couldn't get from private companies, which they had to get from the government, they would have gone through Chapter 7 liquidation instead of the Chapter 11 managed bankruptcy.
The governor of Michigan who supports you, I might add, he says that and so does the head of General Motors who's a Republican. Let's watch what he says.
(BEGIN VIDEO CLIP)
DAN AKERSON, GENERAL MOTORS CEO: We would have been in bankruptcy for years and I think you could have written off this company, this industry and this country.
(END VIDEO CLIP)
WALLACE: They say without the government bailout, Chrysler and General Motors might have gone under.
ROMNEY: Well, they are simply not understanding what I wrote and what I believe.
And, by the way, there are a lot of businesses in America that get in trouble. You have seen airlines go into bankruptcy. You've seen all sorts of businesses go in bankruptcy. And they come out and are stronger. This is not the first time that an industry or a company has been in trouble.
And my position was very simply: don't start writing checks as they did for months. It was the head of the UAW who said, look, they can't go in bankruptcy. These companies can't go into managed bankruptcy, he said, don't do that. They'll never come out. Well, he was wrong. And I was right. They finally went in bankruptcy. After bankruptcy, that was the time to give them the financial support, the guarantees to provide the help to get them out of bankruptcy. That's the way it would have been done best.
The result of the president's plan was that we spent several billion dollars before -- at the time we needed to, number one. And, number two, after the process was over, he gave a huge share to the UAW.
That's not the way bankruptcy normally works. He was paying off the people that supported him and that, by the way, are trying to get him reelected.
The right course was for this industry to go through the same kind of bankruptcy other industries have.
ROMNEY: And if for some reason, they needed some government help, that should have come and get them out of the bankruptcy, not spending billions that the auto executives went to Washington to receive in the first place.
WALLACE: All right. Let's talk about your new economic plan which you released this week. And let's go through some of the details of it.
You would cut individual marginal tax rates by 20 percent across the board. No taxes at all on capital gains and dividends for families making less than $200,000. Cut the corporate tax rate from 35 percent to 25 percent. And entitlement reform slowly raise the eligibility aid for Medicare and Social Security. And smaller benefit increases for the wealthy.
Now, there are criticisms both on the right and the left.
Now, let's first talk about the critics on the right. They say they are playing the Obama class war game. Santorum says you are using the language of Occupy Wall Street, making life more difficult and the rules different for the top 1 percent.
How do you respond to that?
ROMNEY: Well, we have a progressive tax code right now, and what I'm talking about are pretty significant reductions in tax across the board. And the reason I'm talking about those marginal tax reductions across the board is to create incentives for small businesses to start growing and hiring again.
And I'm not trying to change the progressivity of the code. I'm not trying to say that one group or another is going to get a better deal. But what I'm trying to do is to make sure that under no circumstances is the middle class going to end up with a larger share of the tax burden.
It's absolutely essential to me as a guiding principle that middle income Americans don't get hit with a bigger share of the burden. That's the point that I'm making and I'm going to make sure that as we add it all up, that the middle income Americans are not getting a bigger burden.
WALLACE: And what about the argument that you're saying the same class warfare? And you hear this from a lot of people. "The Wall Street Journal" which generally liked your plan says it's the same old Obama class war argument. Yes, you're going to reduce capital gains taxes for the middle class, not for the rich.
ROMNEY: Well, obviously, I want to make sure that we maintain the progressivity of the code. And I want to help people who I think have been most hurt by the Obama economy -- and that's middle income Americans.
I'm not looking to change the deal that we have right now with regards to people looking at their share of the tax burden, but what I am looking to do is to lower the marginal rate for all Americans across the board. And by doing that -- I'm sure you understand this -- about 55 percent of America's workers work in businesses that are not classic corporations. They are instead taxed in an individual rate. I want to get these rates down so we get American workers back into jobs again.
This is a pro-growth policy. That's why "The Wall Street Journal" liked it, wrote a very positive editorial about it. That's why I think people look at President Obama's plan which is calling on raising the marginal rate. That will kill jobs and make it harder for our economy to reboot.
So, whatever choice of language I have to use, I want to make sure to get across to the American people, I'm cutting rates across the board by 20 percent and I'm not going to put a bigger burden on middle income Americans.
WALLACE: All right. Now, let's take the argument from the left. And they say that if your plan as you and your advisors claim is revenue neutral, which means that all of these taxes, when you cut the rates and add or eliminate some deductions isn't going to raise or lower the deficit, that you get your deficit reductions through spending cuts, $500 billion you claim in 2016.
And they say that that ends up being about a 40 percent cut in domestic programs, which means major cuts on the programs that the poor depend on the most.
ROMNEY: Well, as you I'm sure understand, the tax plan that I've described is very much consistent with the tax plan that the president's own bipartisan commission came up with. The Bowles- Simpson commission laid out a plan, which is very similar to mine.
What's astonishing I think to a lot of people in this country is that President Obama just abandoned his own tax commission.
WALLACE: But he took a trillion --
WALLACE: If I may, sir, he took $1 trillion of that money and used it for deficit reduction. You don't.
ROMNEY: Well, what --
WALLACE: -- he didn't, but Bowles-Simpson did.
ROMNEY: Yes. What I do is I take -- I get this tax rate. Take the marginal rate down to encourage economic growth, which it will do. Put more people back to work, get more tax revenue by virtue of that. I also broaden the base, which means for certain individuals, high income individuals, we're going to limit the deductions and exemptions.
And then I go through and reduce the rate of growth and benefits for high income people and Medicare and Social Security. That's for folks down the road, by the way, not for current retirees.
And then I also eliminate a lot of programs, federal programs, and take a lot of poverty programs and send them back to the states where I think they can be managed far more efficiently.
But let me tell -- if this is an argument about President Obama saying hey, look, don't cut back on federal, keep on growing this deficit, I think that's a battle I'm going to win because I am planning on cutting the deficit down to zero. I'm planning to get the balanced budget and at the same time getting this economy going again.
This is a classic pitting of two very different philosophies. Do you believe in lower taxes and lower marginal rates, and smaller government? That's what I believe in.
Or do you believe in higher taxes, like the president is proposing, and more government spending and larger deficits? That's what President Obama stands for. That's a failed policy. We know where that leads.
WALLACE: Finally, sir, and we got only have a couple of minutes left.
Your unfavorables have gone up dramatically during the course of this campaign. Back in October, you were plus 11, favorable versus unfavorable. Now, you're minus 8.
And I hear two major complaints about you. One is that you seem to be campaigning more by attacking your rivals than saying what you're for. And the other is this continuing argument that somehow you seem out of touch with the average Americans.
And there were two examples of that this week I want to play and then have you respond to, sir.
(BEGIN VIDEO CLIP)
ROMNEY: I'm the only person in this race --
JOHN KING, CNN: Is there a misconception about you? The question is the misconception.
ROMNEY: You know, you get to ask the questions you want, and I want to give the answers I want.
I driveway a Mustang and a Chevy pick-up truck. Ann drives a couple of Cadillacs actually.
(END VIDEO CLIP)
WALLACE: Governor, can you understand why some voters would be put off by those things?
ROMNEY: You know, I can't be perfect. I just am who I am. And I can tell you this, with regards of the cars, we have that something that was talked about last September. People asked us what vehicles we own and we have a car that we have in California. We got a car that we have back in Boston, where our home is. So, that's the way it is.
If people think that there is something wrong with being successful in America, then they better vote for the other guy, because I've been extraordinarily successful and I want to use that success and that know-how to help the American people.
And by the way, in terms of connecting with the American people, you know, when I got into this race, a lot of the guys in the race, other people have come and gone. I've got more votes than anybody else in this race so far. I've been the guy that's been able to connect in New Hampshire and in Florida and Nevada. And I think we are on track to do pretty well here in Michigan and Arizona. I'm expected to get the nomination in part because I understand how this economy works.
I, by virtue of my experience, know what it takes to create jobs. I've also balanced budgets. Other people talk about doing that. I've actually done it as a governor, as the head of an Olympics, and as a guy who's run businesses. I'm going to get America back on track.
WALLACE: So, Governor, in 20 seconds, what is the biggest misconception about you.
ROMNEY: Well, I think the biggest misconception would be that I'm a guy that comes from Massachusetts and therefore I can't be conservative. But, you know, if you look at my record in Massachusetts and see that I balanced the budget, lowered taxes 19 times and enforce the illegal immigration laws, got English immersion in our schools, stood up for traditional marriage, was a pro-life governor. I'm a solid conservative -- a committed conservative with the kind of principles I think America needs.
WALLACE: Governor Romney, we want to thank you so much for joining us today. Safe travels on the campaign trail, sir. And we will see what happens Tuesday night.
ROMNEY: Thanks, Chris.
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