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updated 12/21/2011 2:33:18 PM ET 2011-12-21T19:33:18

Guest Host: Michael Smerconish
Guests: Steve Schmidt, Brian Sullivan, Joy-Ann Reid, Dana Milbank, Sam Stein, Erin McPike, Ron Reagan

MICHAEL SMERCONISH, GUEST HOST: Republicans losing the fight on taxes.

Let`s play some HARDBALL.

Good evening. I`m Michael Smerconish in New York. Chris Matthews is
taking some time off after his tour for his book "Jack Kennedy: Elusive
Hero." He`ll be back on Thursday.

Leading off tonight: family feud. The Republican-on-Republican
spitball fight over the payroll tax may be doing for Democrats what they
couldn`t do for themselves. Two national polls give President Obama his
best approval numbers in months, and Republican infighting over whether,
when and how to extend the payroll tax cut seems to be moving the numbers.
It`s possible the GOP is finally paying the price for its full-body embrace
of the Tea Party.

Plus: Up in the air. Three polls have Mitt Romney and Newt Gingrich
in a dead heat nationally. And now Ron Paul is learning what it`s like to
join the front-runners in Iowa. He`s facing renewed questions about
bigoted comments printed in his political newsletters of two decades ago.

Also, why Iowa? Republicans there have proven as good at picking
losers as winners. So why do we care so much what they think? A growing
number of people are saying we shouldn`t.

And "Pants on Fire." We`ll look at Politifact`s biggest lies of the
year. See if you can guess which one came in at number one.

And finally, "Let Me Finish" tonight with the millions being spent on
ads by PACs and the candidates who hide behind them.

We start with a Republican family feud. Dana Milbank is a political
columnist for "The Washington Post," and Sam Stein is the White House
correspondent for the HuffingtonPost.

Gentlemen, let me show you some data. There`s good news for the
president in terms of his overall approval rating, which is now up at 49
percent. That`s 5 points higher than where it was last month, according to
the new "Washington Post"/ABC News poll. And part of the reason seems
obvious, and that is this mess in Washington over the payroll tax
extension.

Look at these numbers from ABC News and "The Washington Post" poll.
When asked who they trust to better handle the issue of taxes, President
Obama now has a solid lead over congressional Republicans. That`s 46 to 41
percent. It`s a big change from just two months ago, when Republicans had
the upper hand over the president on that same issue.

Dana Milbank, what do you make of it all?

DANA MILBANK, "WASHINGTON POST": Well, clearly, the improvement in
the president`s numbers, I think we can agree, is nothing really the
president has done per se. Yes, there`s been a slight downtick in
unemployment, but things fundamentally really haven`t changed. And the
truth is, this president has no business having numbers that high and being
so strong in the horse race for the reelection when the economy is this
bad.

So you can only conclude that there is something that is scaring them
about the other side. And we have two things going on. One is the rise of
Newt Gingrich, which is obviously terrifying to many voters in the middle.
And also this unbelievable spectacle -- I can`t keep my eyes off of it.
I`ve been on the Hill the last two days and it is just an absolute circus
up there.

(LAUGHTER)

MILBANK: And voters have to be saying, We can`t possibly let these
guys run the show.

SMERCONISH: Sam, does anybody coming out of this thing looking good?

SAM STEIN, HUFFINGTONPOST.COM: Well, I think the polls indicate that
the president does come out looking good. I mean, let`s take -- let`s take
a very sober look at this. Where we started was Democrats wanted to tax
millionaires to pay for this payroll tax cut. Republicans said, No way.
They didn`t even want to pay for the payroll tax -- they didn`t even want
to pass the payroll tax cut.

Now Obama`s given up the millionaire surtax, oh, and he`s included the
Keystone pipeline language into the deal, and what has he gotten for it?
Nothing.

I think voters look at that. They say, OK, this man`s willing to
deal, the president, and he`s not being met halfway by congressional
Republicans. We need someone to actually get something done. Unemployment
still remains a problem. There`s 21 million under- and unemployed people
in this country. One person is at least trying to constructively create a
solution. The other one is just moving away from it every time he puts his
hand out.

SMERCONISH: And also, I think part of the narrative that troubles
them is the fact that you have the Republicans so identified with the
preservation of the Bush tax cuts...

STEIN: Yes.

SMERCONISH: ... and now when there`s a tax cut most identified with
the middle class, at a time when income disparity is being discussed like
at no other point in our history, all of a sudden, the Republicans are on
the other side.

STEIN: Yes.

SMERCONISH: Look, as you know, today the House voted to reject the
payroll tax deal that passed overwhelmingly in the Senate this weekend.
House Republicans are calling for a conference committee to negotiate
between the House and Senate proposals. No Democrats voted with the
Republicans today. President Obama then came into the briefing room to
express his displeasure after the vote, and here`s part of what he had to
say.

(BEGIN VIDEO CLIP)

BARACK OBAMA, PRESIDENT OF THE UNITED STATES: The clock is ticking.
Time is running out. And if the House Republicans refuse to vote for the
Senate bill, or even allow it to come up for a vote, taxes will go up in 11
days.

Democrats and Republicans in the Senate said, We`re going to put our
fights on other issues aside and go ahead and do what`s right. I need the
speaker and House Republicans to do the same.

(END VIDEO CLIP)

SMERCONISH: Dana, there`s been a role reversal. Now it`s the
president standing up and going to the nation, arguing in support of a tax
cut. What are the Republicans thinking? Put yourself in their position as
they`re watching these optics.

MILBANK: Well, there seems to be a little bit of a panic going on
right now, Michael. At first they were saying, Look, we`re going to just
stay here until the Senate comes back into session. Now this afternoon,
we`re hearing, well, maybe they just want to tiptoe home for Christmas
after all.

(LAUGHTER)

MILBANK: They really sort of -- they backed themselves into a corner
here. And what`s happening is even if the -- average voter, average
American out there probably isn`t following the nuance of the back and
forth, they`re saying, Look, there`s another mess on Capitol Hill. It`s
not the Senate this time. You know, Harry Reid`s got his feet up
somewhere. They`re seeing only images of John Boehner and Eric Cantor and
a lot of angry Republicans on the House floor.

STEIN: May I make a broader point, though? I mean, for the past two
months, since he introduced his jobs act -- which, by the way, very little
of that jobs act will ever see the light of day -- but since he`s been
talking about it, President Obama`s been almost solely focused on job
creation. We`ve seen House Republicans and Senate Republicans really focus
their energy on where to pay for it. And I think that`s a terrible
contrast for them.

Look at any vote, look at any public polling, and you`ll see people
care more about job creation, they`re more worried about the economy than
they are about deficit. It`s just a matter of fact. And if the
president`s going to spend two straight months talking about jobs and not
be met by anyone else, that benefits him. It just has to happen
(INAUDIBLE)

SMERCONISH: You know, one consideration, of course, is how this is
going to play at the top of the ticket. But you`ve got a third of the
Senate, as usual, and the full House up for reelection, and it brings to
mind something that Republican senator Scott Brown of Massachusetts, who`s
running for reelection next year, said just today. He released a statement
bashing his Republican colleagues in the House. And today he wrote, quote,
"It angers me that House Republicans would rather continue playing politics
than find solutions. Their actions will hurt American families and be
detrimental to our fragile economy."

Dana Milbank, you know, we talk about some of the more intransigent
members of the GOP-controlled House. They`re going to have to stand for
reelection. You wonder when they`re going to take the pulse of the folks
at home as pertaining to the data that we`ve been sharing.

MILBANK: Right. Well, and a lot of the guys making things the most
difficult right now are ones in fairly safe conservative districts. But
yes, they`re making things very difficult for their Senate colleagues in
Massachusetts, in Nevada. The rise of Newt Gingrich has also put a drag on
these guys, as well.

And at the same time, look, we don`t know where the economy is going
to be, you know, what kind of year it`s going to be for Democrats. But the
experience here seems to vindicate the recent change in Obama`s strategy to
take it to the Republicans and take a much more aggressive stance in laying
out these differences. So at least they seem -- the Democrats seem to have
at least a game plan now.

SMERCONISH: Sam, this is reminiscent to me of the night that the
attempted "grand bargain" between the speaker and the president imploded.
And each provided their own narrative. But I remember a takeaway, at least
from my perspective, was to think that Speaker Boehner just did not have
control of the GOP members of the House.

Now, I`m watching what`s transpired in the last couple of days, and
I`m coming to the same conclusion. What`s yours?

STEIN: No, there`s no other conclusion to reach. And it`s almost --
you almost feel bad for Speaker Boehner, in a way, because while he`s
fighting Obama on one front, he`s getting badgered on another.

And if you look at that same "Washington Post" ABC poll, one number
that really stuck out to me was that 41 percent of self-identified Tea
Partiers disapprove of Republicans in Congress -- not Congress, Republicans
in Congress -- sorry, that`s 57 disapprove, 41 approve.

That number was at 73 approve just last spring. So Speaker Boehner
has no love from his base, and he`s constantly looking over his shoulder
and he sees Eric Cantor just waiting for him to fall, and he has to balance
these two interests, which is why he gets some sort of schizophrenic
legislation making going on here.

SMERCONISH: Congress has reached an all-time low in the latest Gallup
poll. Listen to this -- an approval rate of just 11 percent. That`s the
lowest number ever recorded by the organization, which began tracking
congressional approval three decades ago.

Dana, you know, it used to be that if you were an incumbent, you had -
- what did the data say, 90, 95 percent odds of being reelected. One
wonders how incumbency plays in the cycle that we`re heading into right
now.

MILBANK: Well, most of the incumbents, as always, will be fine. But
there -- something does seems to have fundamentally changed here and the
whole place seems to have come unglued. Last night in a private caucus
meeting of the House Republicans, you had 10 members get up there and
compare themselves to Braveheart, the sort of the Mel Gibson character
fighting the English nobility.

SMERCONISH: What?

MILBANK: When you have a caucus that is governed by that kind of
thinking, you know -- and the public is going to look at this and say,
Look, these aren`t reasonable people running our country.

SMERCONISH: The passions...

STEIN: Well, it`s better because a couple months ago, they were
comparing themselves to "The Town (ph)," so they`re (INAUDIBLE)

(LAUGHTER)

SMERCONISH: Passions were hot on the floor of the House today. I`ll
give you an example. Democratic congressman John Lewis had strong words
for Republicans. Here it is.

(BEGIN VIDEO CLIP)

REP. JOHN LEWIS (D), GEORGIA: What is happening here today is
shameful! It is a disgrace! It is unreal! It is unbelievable! We can do
better. If we fail today, how will you face your neighbor, family who are
suffering? Where`s your compassion? Where`s your heart? Where is your
soul?

(END VIDEO CLIP)

SMERCONISH: Dana Milbank, where does it end? Give me the exit
strategy.

MILBANK: That`s the problem because usually, you can sort of see how
these things work out. The disagreement here is fairly trivial, and it`s
not clear that the Democrats have any incentive to get in, so they may just
let the Republicans stew in their own juice for many more days. And I
don`t know about you, but it looks like some people are canceling their
holiday vacations.

SMERCONISH: Sam, it`s a hard sell, I think, for those Republicans to
go home and say, Well, we`re for this tax cut, but two months wasn`t
enough. I think many constituents will say, We`ll take the two months. In
February, you`ll renew it. That`s the way you always do it.

STEIN: Yes, and I think, you know, on these shows, we tend to get
really tied into the sort of inside game, but there are real-world
consequences to this that will affect people in districts. And people are
living paycheck to paycheck, and this will matter.

SMERCONISH: No doubt.

STEIN: And I think at some point, Republicans are going to recognize
that it`s better for them to at least go two months and negotiate from
there.

SMERCONISH: I think you`re probably right. Dana Milbank, thank you.
Sam Stein, thank you, as well.

Coming up: Three new polls show Newt Gingrich and Mitt Romney tied,
literally. And now Ron Paul is facing questions about racist and anti-gay
remarks printed in his political newsletter 20 years ago. That`s ahead.

You`re watching HARDBALL, only on MSNBC.

(COMMERCIAL BREAK)

SMERCONISH: We`ve got new national poll numbers in the Republican
race coming up, but first a couple of polls from early states. Let`s check
the HARDBALL "Scoreboard," starting in New Hampshire, where Mitt Romney`s
firewall is holding. He leads a new PPP poll with 35 percent. Ron Paul`s
at 19, Newt Gingrich at 17.

And in South Carolina, a Clemson University poll has Gingrich with 38
percent to Romney`s 21 percent, Ron Paul at 10. One caveat. This poll was
in the field for nearly two weeks. That`s an eternity in a race as fluid
as this one.

We`ll be right back.

(COMMERCIAL BREAK)

SMERCONISH: Hey, welcome back to HARDBALL. Every time someone shoots
to the front of the Republican pack, they seem to sink quickly in the polls
under the scrutiny of being the front-runner. Newt Gingrich is the latest
to suffer that fate. Three new polls show that Gingrich has lost his lead
and is now in a flat-footed tie with Mitt Romney. Just take a look at
that. All three polls -- ABC News/"Washington Post," CNN, CBS -- all have
Romney and Gingrich in a dead heat.

And while Romney and Gingrich fight it out for the top spot, Ron Paul
is moving to the head of the pack in Iowa and getting the scrutiny that
comes with being the number one there.

Joining me now to talk about all of this is Steve Schmidt -- he`s a
former senior adviser and strategist to both the McCain and Bush
presidential campaigns, as well as MSNBC political analyst -- and
Democratic strategist Bob Shrum.

Steve, here`s my question. Does anyone come back once they go into
purgatory, politically speaking? Because I`m thinking of how Michele
Bachmann had some mojo and then she faded. And Herman Cain had mojo and
faded, and Rick Perry had it and faded. But it seems like they never come
back. If Newt is truly fading now, is he done, or might he come back?

STEVE SCHMIDT, REPUBLICAN STRATEGIST, MSNBC POLITICAL ANALYST: Well,
I think if he`s fading, I think it`s a permanent condition. None of the
candidates have come back, as you pointed out. I do think it will be
interesting. If you look at the Iowa caucuses over the last couple
election cycles, there`s always been a lot of turbulence around them in the
days preceding. I wonder if you`re going to see Rick Santorum maybe make a
move up here, one of the few candidates that really hasn`t had a shot in
the limelight yet.

But you know, if you look at this race, it does seem to be stabilizing
in Mitt Romney`s favor right now.

SMERCONISH: Bob, what`s your analysis of this remarkable data? All
three of those major polls say dead heat.

BOB SHRUM, DEMOCRATIC STRATEGIST: Well, once you start bleeding --
and Gingrich is bleeding -- the polls` direction tends to continue. Look,
he`s been hurt badly under the weight of all of this Romney super-PAC
negative advertising in Iowa. He`s been hurt by Christian conservatives
abandoning him.

I think, ironically, this could open the way for Romney to do
something no one thought he could do, which is to maybe win Iowa, because
the second choice of the Gingrich voters out there is more Romney than
anybody else. And that would be a real irony if that happened because
Romney, I think, could then roll in New Hampshire, do well enough in South
Carolina, and win Florida.

By the way, the Romney second choice in Iowa is unquestionably Ron
Paul because Ron Paul is an unthinkable Republican nominee. He`s the ideal
Democratic version of the Republican nominee. And if he emerges as the
major alternative, then I think Romney`s pretty close to sealing the deal.

SMERCONISH: Steve, what`s the implication of a Ron Paul victory in
Iowa? What does it say about New Hampshire, South Carolina, Florida, and
so forth?

SCHMIDT: Well, I think what`s more important is the durability of Ron
Paul in this race. If he wins Iowa, is he able to go forward during the
entirety of the Republican nominating process, picking up 15 to 20 percent
of the vote? If that happens all the way through the process, he would
stand at the end of it the leader of a sizable faction in a Republican
Party that supports views that are antithetical to the views of much of the
mainstream of the Republican Party.

So you see this interesting debate starting to take place in the
Republican Party, precipitated by the rise of Ron Paul and his movement,
which is, I think, a lot more serious than it was four years ago.

SMERCONISH: We`ve all had this conversation on many occasions. It
just seems like this process on the GOP side of the aisle is lacking
practicality. As badly as they want to defeat Barack Obama, there doesn`t
seem to be an analysis by many of these voters as to who among those on the
stage is best suited to win a general and not a primary.

SHRUM: Well, there`s always -- I think...

SCHMIDT: I think -- I think -- I`m sorry.

SHRUM: Go ahead, Steve. Go ahead, Steve.

SCHMIDT: Well, I was going to say I think an increasing question for
the Republican nominee ultimately is how do you keep Ron Paul in the fold?
How do you keep Ron Paul and his movement inside the Republican Party,
prevent him from leaving the party to mount a third party bid? Because if
your goal is, as a Republican, to win the White House, a third party Ron
Paul bid is a big, big problem as you look ahead to November.

SMERCONISH: Hey, Bob, let me -- let me see what you think of this.
Paul, who`s leading in some of these Iowa polls, as we`ve mentioned, now
seeing what it`s like to be a front-runner. "The Weekly Standard" reports
on the inflammatory quotes from some of those newsletters that were
published under his name 20 years ago. One newsletter featured a quote
about the LA riots which read, quote, "Order was only restored in LA when
it came time for the blacks to pick up their welfare checks."

Another newsletter said people with AIDS should not be allowed to eat
in restaurants because, quote, "AIDS can be transmitted by saliva."

There was also a quote referring to Israel as an aggressive, nationalist,
socialist state and criticism of Ronald Reagan for making Martin Luther
King Day a federal holiday, referring to it as the "annual Hate Whitey
Day."

Ron Paul says he`s not the one who signed these, wrote these. He`s
not sure who did.

Bob Shrum, what is the impact?

SHRUM: Well, I don`t know whether he wrote them or not, but the truth
of the matter is that he published them.

I think they`re disqualifying. I think Steve`s absolutely right.
He`s not only unacceptable inside the Republican Party, outside the
mainstream of the Republican Party. He`s unacceptable in America. He`s a
disqualified presidential candidate, and not just because of what he`s
written.

But he could win Iowa. Look, as Steve knows very well, because he and
I spent a lot of Decembers and Januarys in Iowa, Iowa operates a little
differently on the Republican side than the Democratic side. Since 1980,
in contested Iowa caucuses, the Democratic winner has gone on to the
nomination 84 percent of the time.

For Republicans, that figure is only 60 percent. Pat Robertson, for
heaven`s sake, finished ahead of George H.W. Bush in 1988. That didn`t
mean that Republicans didn`t come back in 1986 and contest the caucuses.
They did.

But I can tell you right now, there`s a real chance, I think, that
Iowa can take a flyer here, unless those Gingrich bleeds all go to Romney
and Romney pulls an upset. And then Romney has an ideal situation either
way. Either he wins Iowa, he`s on a roll, or he gets to run against Ron
Paul, and I can`t conceive that he wouldn`t be the Republican nominee under
those circumstances.

SMERCONISH: Steve, is it a pipe dream that some semblance of a GOP
organization or establishment in Iowa can get it together and say, hey, we
don`t want to be embarrassed here, we got to pick a winner, and,
consequently, in the next two weeks, we need to coalesce around candidate X
or Y?

SCHMIDT: I don`t know if there`s any establishment that has that
level of control over this part of the Republican primary electorate.

I think one of the things we have seen already this year is the
diminution of importance of the Iowa straw poll. And I suspect in four
years, you will have even fewer candidates participating in it than this
year.

But if the caucus does, you know, finish -- you know, the person who
finishes in the caucus, you know, in the first position is someone who is
not electable, is considered a fringe candidate by a majority of the party,
that doesn`t bode well for the future of the Iowa caucuses. And I think
that`s certainly a fair point.

SMERCONISH: Bob, if I`m in the White House and I`m watching what`s
going on, on the Republican side of the aisle, given the fluid nature of
it, I imagine I`m thrilled?

SHRUM: Yes, you`re thrilled.

But in the end of the day, I think the Obama campaign believes it`s
going to be Romney. And, you know, the funny thing is, we have searched
all year for the un-Romney. The truth is, Romney may win because he`s the
un-Gingrich, the un-Paul, the un-Perry, and the un-Bachmann.

He may be a flip-flopper, but he doesn`t seem fatally flawed to
Republicans.

SMERCONISH: Thank you both, to Steve Schmidt and to Bob Shrum.

SHRUM: Thank you.

SMERCONISH: Appreciate your expertise.

SCHMIDT: You bet.

SMERCONISH: Up next: Mitt Romney once again tried to dispel the
notion that he`s too uptight -- highlights from his top 10 list last night
on "Letterman." That`s next in the "Sideshow."

You`re watching HARDBALL, only on MSNBC.

(COMMERCIAL BREAK)

SMERCONISH: Welcome back to HARDBALL. Now for the "Sideshow."

First up, let loose. That`s just what many Republican voters have
been hoping for when it comes to Mitt Romney. Well, he gave them a run for
their money last night, or at least tried, by appearing on "The Late Show
With David Letterman." You think Romney`s too uptight? Judge for
yourself.

Here he is with his own top 10 list of things that he would like to
say to the American people.

(BEGIN VIDEO CLIP, "LATE SHOW WITH DAVID LETTERMAN")

MITT ROMNEY (R), PRESIDENTIAL CANDIDATE: Isn`t it time for a
president who looks like a 1970s game show host?

What`s up, gangstas? It`s the...

(LAUGHTER)

ROMNEY: It`s the M-I-double-tizzle.

(LAUGHTER)

ROMNEY: Live from New York, it`s Saturday night.

DAVID LETTERMAN, HOST, "LATE SHOW WITH DAVID LETTERMAN": No, no.
Mitt...

(LAUGHTER)

ROMNEY: My new cologne is now available at Macy`s. It`s Mitt-
stified.

Newt Gingrich, really?

LETTERMAN: Yes. Yes. That`s right.

(LAUGHTER)

LETTERMAN: And the number-one thing Mitt Romney would like to say to
the American people:

ROMNEY: It`s a hairpiece.

LETTERMAN: There you go, Mitt Romney.

(APPLAUSE)

(END VIDEO CLIP)

SMERCONISH: Letterman`s top 10 list has become as much a part of
presidential politics as kissing babies and eating bratwurst.

Next up, he knows if you have been bad or good. As members of
Congress clashed over the payroll tax cut extension on the House floor this
morning, one Democratic representative brought in some holiday-themed props
to make his point.

Here`s Jim McDermott of Washington State accusing Republicans of
playing Scrooge.

(BEGIN VIDEO CLIP)

REP. JIM MCDERMOTT (D), WASHINGTON: It`s Christmastime. Kids are
hanging their socks all over the world. And they`re all getting up and
hoping there will be something in that sock on Christmas Day.

And the Republicans have something to put in it. They have a lump of
coal. They`re going to say to 160 million people, we`re going to boost
your taxes. Here`s your Christmas gift, right?

(END VIDEO CLIP)

SMERCONISH: With the approval rating for Congress now at a record
low, it seems perfectly clear who the American people think should wake up
to a pile of coal this Sunday, am I right?

And, finally, may the best man win, or at least the one who can
withstand the firestorm of attack ads taking center stage in the Republican
presidential race. Just ask Bill Clinton. The former president appeared
on "The Today Show" this morning to talk about the 2012 showdown and
whether Newt Gingrich will be able to weather the storm, despite being the
target of negative ads.

Let`s listen.

(BEGIN VIDEO CLIP, "THE TODAY SHOW")

BILL CLINTON, FORMER PRESIDENT OF THE UNITED STATES: You find out a
lot about people in the crucible of battle. And they`re all turning on him
now and running all these negative ads.

And, basically -- it`s funny -- they`re basically doing to each other
now, in a serial way, what they did to the Democrats in 2010. And then
they fight back and one rises and one falls. It`s going to be interesting,
because it appears that right now, he or Governor Romney have the edge.
And the one with the greatest resilience, with the ability to come back
from adversity will probably prevail.

(END VIDEO CLIP)

SMERCONISH: Kind of makes the whole thing sound like a reality show
in the wilderness, doesn`t it?

Up next: Why do we pay so much attention to what happens in Iowa?
The state has a history of picking candidates that don`t win the
nomination. And critics say if Ron Paul wins this time around, whatever
relevance Iowa has left is going to be lost.

You`re watching HARDBALL, only on MSNBC.

(COMMERCIAL BREAK)

BRIAN SULLIVAN, CNBC CORRESPONDENT: I`m Brian Sullivan with your CNBC
"Market Wrap."

And it was, indeed, a good day on Wall Street, the Dow surging 337
points. The S&P and the Nasdaq are also rising. Some good news out of
Europe, some higher confidence numbers. But the real beat was because of
stronger-than-expected housing data here in the United States, housing
starts rising more than expected. Much of that, yes, was for apartment
buildings and multifamily homes.

But building permits also rose. A little bit of a good news slant to
some of the housing data that we have seen recently. That lifted all
boats. We had some better-than-expected results from an investment bank
called Jefferies which had been around fire. You sort of factor that all
in and what you get is a Hungry-Man meal and all the components for a 337-
point rally for the Dow Jones industrial average.

The Dow, by the way, is now up 4.5 percent for the year. Despite all
the bad news, stocks are closing in on a higher 2011.

With your CNBC "Market Wrap," I am Brian Sullivan.

SMERCONISH: Welcome back to HARDBALL.

Does the state of Iowa really deserve to hold the first presidential
nominating contest?

A lot of people have been saying lately that it doesn`t, including a
University of Iowa professor who`s lived in the state for 20 years and
writes: "In a perfect world, no way would Iowa ever be considered
representative of America or even a small part of it. There are few
minorities, no sizable cities, and the state`s about to lose one of its
five seats in the U.S. House because its population is shifting. Still,
thanks to a host of nonsensical political precedents, whoever wins the Iowa
caucuses in January will very likely have a 50 percent chance of being
elected president 11 months later. Go figure."

Is it time for another state to be first in the nation?

Joy-Ann Reid is managing editor of The Grio and an MSNBC contributor.
Erin McPike is the national political reporter for RealClearPolitics,
covering the 2012 GOP race.

Here`s the article headline, "Iowa Is Over." In "The Atlantic," Ari
Melber writes, "This year, the idea of Iowa in presidential politics will
probably die."

Joy, do you buy into that?

JOY-ANN REID, MSNBC CONTRIBUTOR: Well, you know what, Michael?

The thing with Iowa is that it rewards the kind of political
campaigning that is less and less a feature of modern campaigns. Right?
It rewards the retail politicking, door-to-door, the face-to-face stuff.
It rewards the passion of being able to get people to caucus for two hours

And, yes, it`s demographically unrepresentative. So I think -- yes,I
think in a lot of ways, Iowa is an anachronism. And at least if Mike
Huckabee is any guide, it tends to nominate somebody who then goes on to
not win the nomination, not always, but it did recently.

SMERCONISH: Erin, is this a conversation we have every four years, or
is there something different about it this year?

ERIN MCPIKE, REALCLEARPOLITICS: It`s been increasing over the last
couple of campaigns.

As you remember, four years ago, there was a push to get some states
earlier in the calendar, like Florida and like Nevada. And this year,
Florida made a push to come earlier. And they won, and so candidates are
placing more of an effort on Florida, like Newt Gingrich, like Mitt Romney.

But, also, Arizona has tried really hard to move up in the calendar as
well, and it`s states with big cities that don`t get to go early. And they
want to see a change, because they have all of these people in urban areas
that feel like they`re not getting much of a say in the primary contest.

SMERCONISH: Erin and Joy-Ann, look at this. The winner of the Iowa
caucuses was the eventual Republican nominee less than half the time. And
here are the last five contests in which there wasn`t an incumbent
Republican president running.

2008, Iowa chose Huckabee. The nominee was John McCain. In 2000,
Iowa chose George W. Bush, and Bush was the nominee -- `96, Bob Dole won
Iowa and Bob Dole won the nomination. In 1988, Dole won Iowa, but George
Herbert Walker Bush won the nomination. 1980, it was George Herbert Walker
Bush winning the Iowa caucuses, but Reagan won the nomination.

So, Iowa, by this count, Joy-Ann, two for five. What do you make of
it?

REID: Yes. I mean, and, well, Bill Clinton didn`t win the Iowa
caucuses the first time in 1992 either. So I don`t think that that`s
necessarily the reason that Iowa is starting to look like an anachronistic
choice to be the first.

I think what Erin said is really more important. This is a very
unrepresentative group of voters. And it`s also a form of voting that is
not representative of the rest of the country. So I think, particularly in
the Republican Party, however, it`s a chance for the evangelical wing of
the party to be heard, because they are just so dominant.

And, again, is that going to help them with independents going
forward? Would the person who can win that group of voters be the most
electable? Probably not.

SMERCONISH: Erin, I`m glad that Joy-Ann brought it up, because this
year it seems like the evangelical community has not coalesced around a
single candidate.

MCPIKE: They can`t.

But, you know, some of the candidates are trying really hard to get
that vote. I was in Iowa just this past weekend, and Michele Bachmann,
Rick Santorum, and Rick Perry were all talking about their own faith and
how important it was to them, and trying to tell voters, you should choose
based on your values, because they know that those voters come out the most
to the caucuses, and those are the voters that put Mike Huckabee over the
top four years ago.

SMERCONISH: The Iowa conservative Christian group The Family Leader,
which hosted a GOP debate and has great sway in the state`s politics, said
in a statement today, as a matter of fact, "The Family Leader will remain
neutral in this presidential campaign cycle," although the group`s two
leaders have personally endorsed Rick Santorum.

Joy-Ann, that`s a big plus for his campaign, given the Christian
community in that state.

REID: Yes, absolutely. And Rick Santorum has always been sort of the
most authentically sort of provocatively Christian, if you want to put it
that way, of the candidates.

But does he have a shot at getting the nomination? No. But I think
for the Republican Party, which is sort of a three-legged stool -- you have
got of old John Birch Society guys, who we now call the Tea Party. You
have got the corporate ring that wants Romney. And then you have got these
evangelicals that seem to have no place to go. They don`t like Romney.

He`s not a Christian in their sort of sense of the word, and they
really can`t feel comfortable 100 percent with Newt Gingrich. It is sort
of a mess.

SMERCONISH: Erin, if Ron Paul is victorious two weeks from today in
the Iowa caucus, what does that do vis-a-vis the future of Iowa being first
in the nation? In other words, will they jeopardize their standing?

MCPIKE: They very well might.

And Iowa Republicans and Iowa Democrats are both really worried about
this. But one thing I would add, Michael, is this the one time that
flyover country really gets a say in the political process. And that`s
going to be an argument that we will continue to hear four years ago -- if
other states try and knock Iowa off.

Midwestern lawmakers complain all the time that legislation going
through Congress has really underserved rural America. So this is the one
time they get a say, and that`s the argument they will continue to make.

SMERCONISH: I wish they would implement regional primaries and just
start in a different part of the country every four years and keep it
moving.

Let me show you something that a Republican Party chair in Hardin
County, Iowa, said. He said he worries that a Ron Paul win will hurt the
state`s relevance -- quote -- "My biggest fear is that the Republican Party
nationally and a lot of states that want to be number one in the nominating
process will simply point to Ron Paul winning and say, Iowa`s irrelevant."

Joy-Ann, I imagine that would be an argument made by Floridians, that
Florida...

(LAUGHTER)

SMERCONISH: ... which has already shown a willingness to incur
penalty just to move further ahead in the process, will say, we`re more
representative of the nation, we represent all demographics. Let us go
first next time.

JOY-ANN REID, THEGRIO.COM: Yes, and especially for Republicans,
Mike, because, remember, Florida is the one state where you have a
Republican Party that`s got a significant share of Hispanics. So Florida
has made a really strong case that they should be earlier.

And look, if Iowa gets discredited because Ron Paul wins, it won`t be
because MSNBC says that it`s discredited, it will be because of opinion
leaders on the right. The news networks that serve them, the blogs that
serve them, they discredit anything that Ron Paul wins.

So, it`s sort of baked in the cake. If he wins, the opinion leaders
on the right will say, Iowa didn`t matter.

SMERCONISH: Erin, it seems like the process, and I mentioned this
previously, is lacking in practicality. The people are going in there for
a visceral vote, not necessarily who can win in a general election against
Barack Obama.

ERIN MCPIKE, REAL CLEAR POLITICS: Well, that`s right, but one other
thing here. The Iowa system is caucuses. It`s not a primary.

SMERCONISH: Right.

MCPIKE: So, it`s not that people get to come in and cast a vote
based on a secret ballot. So what it is, is if your neighbor can peer-
pressure you to support the candidate that he or she supporting, you`re
more likely to go with that one and not get to make up your own mind. So,
it`s kind of a double whammy of impracticality.

SMERCONISH: Joy-Ann Reid, Erin McPike, thank you so much for being
here.

REID: Thank you.

MCPIKE: Thank you.

SMERCONISH: Up next, the biggest lies in politics this year.
PolitiFact has compiled the A-list of the biggest whoppers. That`s ahead.

This is HARDBALL, only on MSNBC.

(COMMERCIAL BREAK)

SMERCONISH: We may be getting a lot closer to seeing a viable third
party candidate on the ballot in 2012. The nonpartisan group Americas
Elect has been trying to mount a third party presidential campaign in all
50 states.

And now, they`ve reached a major milestone. They`ve gotten on the
ballot in California. The vote-rich Golden State is the 12th state whose
ballot Americas Elect has gotten on. And it could go a long way in getting
the media traction in the rest of the country.

We`ll be right back.

(COMMERCIAL BREAK)

SMERCONISH: Hey, we`re back.

This was a big year for political whoppers, but which were the
biggest?

PolitiFact, the fact-checking Web site operated by the "St.
Petersburg Times" and "Congressional Quarterly," they got a few ideas.
They crowned their lie of the year today. We`ll get to that in just a
moment.

But first, let`s take a look at some of the other finalist, the
lowlights, if you will.

And to help us sift through the facts and fiction, we`re joined by
Ron Reagan, the author of "My Father at 100."

Ron, we`ll start with this piece of misinformation from Michele
Bachmann. It was the GOP debate in Tampa back in September.

You`ll remember she criticized Rick Perry for ordering the
vaccination of young schoolgirls in Texas to guard against HPV. Then the
next morning, she was asked about it and repeated what she was told by a
woman the night before. Here it is.

(BEGIN VIDEO CLIP)

REP. MICHELE BACHMANN (R-MN), PRESIDENTIAL CANDIDATE: I had a mother
last night come up to me, here in Tampa, Florida, after the debate. She
told me that her little daughter took that -- took that vaccine, that
injection, and she suffered from mental retardation thereafter.

(END VIDEO CLIP)

SMERCONISH: I thought the worst part about it was repeating such a
scurrilous rumor.

RON REAGAN, AUTHOR, "MY FATHER AT 100`: Yes, the irresponsibility of
that. There are many children, of course, who get vaccines for all sorts
of things. I know that this is a source of contention for some people, but
to tell people as a presidential candidate that this particular vaccine
causes mental retardation, based on what, some woman who came up to you at
the end of a debate and blurted this out?

That`s the height of irresponsibility.

SMERCONISH: And medical ethicists will say they`re forever fighting
battles online about exactly this sort of thing.

Speaking of Republican --

REAGAN: Indeed.

SMERCONISH: -- candidates, Rick Perry messed up the facts about the
scientific community while answering a question about global warming.
Here`s that one.

(BEGIN VIDEO CLIP)

GOV. RICK PERRY (R-TX), PRESIDENTIAL CANDIDATE: I think there are a
substantial number of scientists who have manipulated that and so that they
will have dollars rolling in to their projects. And I think we`re seeing
it almost weekly or even daily, scientists are coming forward and
questioning the original idea that manmade global warming is what is
causing the climate to change.

(END VIDEO CLIP)

SMERCONISH: Substantial number of scientists, he says.

REAGAN: Yes. That substantial number would be probably -- the
substantial number of climatologists who actually question anthropogenic
manmade global warming is probably similar to the number of biologists who
question evolution, which is something else the Republican candidates are
always bringing up. That number is close to zero. Zero.

SMERCONISH: And that`s how Rick Perry ends up on the list.

REAGAN: Exactly.

SMERCONISH: All right. Next -- in terms of the lies, PolitiFact
accuses the president -- I have to say, I remember their final list of 10,
and they were, they were, you know, equal opportunity offenders. People
might wonder, OK, give us some of those Democratic lies. Here`s one.

They say it was the president and the truth about his record on
taxes. Let`s watch part of the interview that he did with Bill O`Reilly.

(BEGIN VIDEO CLIP)

BILL O`REILLY, FOX NEWS: Do you deny you`re a man who wants to
redistribute wealth?

BARACK OBAMA, PRESIDENT OF THE UNITED STATES: Absolutely.

O`REILLY: You deny that?

OBAMA: Bill, I didn`t raise taxes once. I lowered taxes over the
last two years.

(END VIDEO CLIP)

SMERCONISH: PolitiFact says for the record, the president signed
legislation raising taxes on cigarettes, according to them. The new health
care law also includes new taxes on wealthier Americans and also on people
who opt not to have insurance.

REAGAN: This is where it gets a little interesting here with
PolitiFact. Now, this is not exactly a lie. Clearly, when he was talking
to Bill O`Reilly, he was thinking of income tax, taxes on income, payroll
tax and federal income tax. Instead, what we get is -- well, it`s not
quite true, because he raised cigarette taxes and also that terrible big
tax on in-door tanning beds, was in the -- compare that line with some of
the other lies that we`ve just heard that are just nose-blowing, outrageous
lies, totally false. It`s a different category, altogether.

SMERCONISH: I have to say, I try to play it down the middle, and
when I looked at their final list, on one hand, I credited them for being
nonpartisan in the approach. But any rational observer would have to take
a look at the 10 finalists and say that there was just no comparison
between the breadth of those on one side as compared to the other side of
the aisle.

Here`s another whopper that`s been repeated by a number of
Republicans. Quote, "Zero jobs were created by the president`s stimulus
program." That claim appeared in an ad by the National Republican
Senatorial Committee.

REAGAN: Yes. Zero jobs created. Well, the CBO disagrees with that,
of course. They come up with between 1.3 million and 3.6 million jobs
created or saved by the stimulus package. If you look at Moody`s and
groups like that that look at the situation, they tend to revolve around
2.5 million jobs saved or generated by the stimulus package -- 2.5 million
is a long way from zero.

SMERCONISH: You`ll not be surprised if I tell you the number of
times my phone rings on radio and people say to me, well, you know, of
course, not a single job was created by the stimulus bill.

REAGAN: Well, these are people who listen to a certain other cable
network, FOX, which is not a news station as much as a propaganda outfit
and as we now know, study after study has proven, the more you watch FOX,
the less you know.

SMERCONISH: All right. Here it is, Ron Reagan. It`s the PolitiFact
lie of the year, the Democratic claim that Republicans voted to end
Medicare. It appeared in a humorous ad by the Democratic Congressional
Campaign Committee this year.

Here`s what it looked like.

(BEGIN VIDEO CLIP)

UNIDENTIFIED MALE: You missed a spot.

UNIDENTIFIED MALE: Did someone call the fire department because it`s
about to get hot in here.

ANNOUNCER: The Democratic Congressional Campaign Committee is
responsible for the content of this advertising.

(END VIDEO CLIP)

SMERCONISH: Ron Reagan, that`s the lie of the year, according to a
Pulitzer Prize-winning Web site PolitiFact, the blogosphere is on fire as a
result of it today.

REAGAN: Indeed, I notice that had as soon as I got up this morning
and as well they should be.

Now, we can argue about this sort of thing, the idea that -- that the
Republicans didn`t actually vote to end Medicare tomorrow and call it a
whole different program, but clearly what the Ryan plan proposed was to
phase out Medicare and turn it into a voucher program over 10, 20, maybe
even 30 years, so while the Democrats might be exaggerating a little bit
there for effect, essentially they are correct.

SMERCONISH: And I should point out that PolitiFact wraps themselves
in part from factcheck.org from the Annenberg Public Policy Center, quote,
"Medicare would remain an entitlement program but would also be more costly
to future beneficiaries. It would not end."

REAGAN: Well, it might not end. But, again, everybody knows that
Republicans or a certain hard core of Republicans don`t like Medicare and
want to undermine it. They want to privatize the program. They want to
turn it -- just like they want to privatize Social Security and make it a
boondoggle for Wall Street, they want to shovel more money to the private
insurance industry and that`s what the aim of the Ryan plan was.

So, when Democrats say they are voting to end Medicare, in effect,
they are correct.

SMERCONISH: Ron Reagan, thank you as always for your time. We
appreciate you being on HARDBALL.

REAGAN: Thanks, Michael. Happy holidays.

SMERCONISH: You, too.

REAGAN: And when we return, allow me to finish with those big
anonymous super PACs pouring millions into the Republican race and the
candidates who hide behind them.

You`re watching HARDBALL, only on MSNBC.

(COMMERCIAL BREAK)

SMERCONISH: Two weeks from today, voters go to the caucuses in Iowa,
and in this the 11th hour, there`s been another sharp turn in the road with
regard to the tumultuous GOP primary. This one is different than those
which preceded it. Prior dalliances with candidates ended with discontent
upon closer scrutiny.

Ron Paul has been notable for his steady numbers, but Michele
Bachmann had the mojo and lost it, same with Rick Perry and then Herman
Cain. Those looking for an alternative to Mitt Romney then seemed to
settle on Newt Gingrich.

In Iowa, a PPP survey from two weeks ago showed Gingrich in first
place in that state with 27 percent of the vote. This week, Gingrich is
down to 14 percent, trailing Ron Paul and Mitt Romney.

Nationwide, Gallup released a daily tracking poll that confirmed
Gingrich`s lead has evaporated and a CNN poll confirms that standing.

So what happened? Well, as we`ve discussed here and as is documented
on the front page of today`s "New York Times," Gingrich has been on the
receiving end of a barrage of negative attacks, not only from his
opponents, but also from their super PACs.

Gingrich has struggled in the face of the attacks, trying to honor a
promise he made to remain positive. He`ll now mount a bus tour to try to
combat the negativity.

But that`s going to be tough to do in the face of 1,200 negative ads.
That`s right. According to Kantar Media, Iowans have been showed
commercials with a negative message about Mr. Gingrich more than 1,200
times in the last few weeks.

The biggest player by far in the state has been Restore our Future,
that`s a super PAC supporting Mr. Romney. So far it`s spent $2.6 million
on television ads depicting Gingrich as tainted by scandal, soft on illegal
immigration and corrupted by decades of work in Washington.

So, the "Boston Globe" now notes that super PACs, the new campaign we
oven choice since last year`s Supreme Court ruling which struck down
contribution limits and corporations, labor unions and wealthy individuals,
are playing an increasingly muscular role in the days before the first
contests in the Republican presidential nominating election.

So, with two weeks until the Iowa caucuses and three weeks until the
New Hampshire primary, committees that are lined with specific candidates
have poured more than 7 million into ads in the early states.

They say that all is fair in love and war, and so, too, in politics.
But here`s one thing that is unfair: the anonymous nature of these attacks,
and that needs to change. Iowans will go to the polls on January 3rd, but
there need be no disclosure on who is donating to the super PACs funding
the attacks until January 31. The "Globe" noted that the identities of
many of the donors to these super PACs may not be disclosed to the election
commission until January 31, the date of the Florida primary, when year-end
reports are due.

In theory, at least, if one candidate gets hot through the early
contests, the nomination could be wrapped up before the public knows who
paid for the advertisements that will fill the airwaves with increasing
frequency.

Citizens United changed the way in which campaigns are being funded,
but there still can be transparency. In the Internet age in which we live,
there`s no reason why we cannot have full and immediate disclosure of all
contributions in real time.

That`s HARDBALL for now. Thanks for being with us.

"POLITICS NATION" with Al Sharpton starts right now.

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

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