tom davis. i'm candy crowley. and this is "state of the union." the president said he wanted a deal by friday so lawmakers met with him at the white house day after day after day. they took a break friday, and the president pushed again. >> if washington operates as usual and can't get anything done, let's at least avert armageddon. >> joining me now, white house budget director jacob liu. thanks for being here this morning. >> good to be with you, candy. >> we are told by hill sources that since the last white house meeting on thursday and this morning there has been no progress. do you concur? >> i think quite a bit has been going on since the meeting at the white house on thursday night. >> there's been activity. has there been progress? >> there's been activity and progress i think on two fronts. first, there are substantial discussions going on in the senate between the two leaders to make sure that at a minimum congress has a way to take action and avoid default on the u.s. debt. it's critical. we don't think it's enough. we think that the president has said clearly we should do as much as we can to reduce the deficit. but we have to avoid kind of chaos that would result from default. >> you're talking about the mcconnell/reid -- >> correct. >> -- way out of not having a -- it cuts $1.5 trillion and then the deficit. >> my understanding is what they're working on right now would provide a mechanism for extending the debt and provide for a joint committee of congress to take action on the deficit. the president's made clear that we need to do more than that. we need to get as much done to reduce the deficit now and the time to act is now. i think in addition to that there have been a lot of conversations going on amongst parties. the president at the end of the meeting on thursday said that each leader should go back to their caucus, they should talk to each other, be back and ft. worth the administration. that's been going on since thursday. >> so you've been talking to folks, as well, about the grand deal and the medium deal and d -- >> a there have been a lot of conversations. >> right. >> they'll continue. >> again, conversations aren't exactly progress. so where do you think you've made progress? >>, you know, i think it's not insignificant that all the leaders understand that it would be irresponse to believe get to august 2nd and not extend the ability of the united states to pay its obligations. >> do members of congress understand that? >> i think that as we approach it more and more seem to be coming to it. there will be a fringe that believes that playing with armageddon is a good idea. but i don't think that's where the majority will be. >> any white house meetings today with any of the principals? >> you know, i haven't been to the office yet this morning. i think i'll find out when i get there. >> when you get there. okay. so you seem fairly confident that at the very least there will not be default on the 2nd. >> i have confidence that ultimately the responsible leadership in washington will not fail to take an action, where failure would mean interest rates that would amount to a tax on all americans when they buy a home or a car, they would undermine our recovery. they would create chaos in the u.s. and the world economy. i'm confident that the responsible leaders of congress know that that is not an option. >> more immediately, you'd have to make some spending priorities, payment priority decisions -- social security benefits, federal worker pay, defense contractors. what are your priorities should you not have the debt ceiling raised on the 2nd when you had these bills that sort of immediately become due? social security checks, federal worker pay, defense contractors. >> our plan is for the congress to do its work if the president signed into law legislation that would make it possible for the united states, as it always has, to keep its obligations. we'll be ready to deal with whatever happens. but there is no plan other than meeting our obligations. >> surely you must have discussed priorities, though -- we have to pay this. >> well, the truth is that this is a different situation than the united states has ever faced. we've never gone into a situation where we didn't have enough money to pay our bills. we borrowed 40 cents on a dollar right now. if the time comes when we lose the ability to pay our bills, there will be a cash-flow issue that is very real. and that's why it's critical that congress take action before august 2nd. >> would you actually allow it to happen, that those social security checks would not go out? would you allow that to happen? >> as the president has indicated, it's not a question of what we allow and don't. >> but you get to decide priorities. there will be some money -- >> there won't be enough money to pay all the bills. >> of course not. that's why i'm talking about priorities. >> i think once one gets into the business of trying to ask about setting priorities it misses the the fundamental question, which is that it's unacceptable for the united states to be in a place where, whether it's social security recipient or a soldier or somebody who is just owed money by the government, can't be paid because we have not done our job. >> let me play something, talking act everything on the table. one of the things as you know that some republicans are pushing is a balanced budget amendment, constitutional amendment to require a balanced budget under certain circumstances. here's what the president had to say the other day. >> i think it's important for everybody to understand that all of us believe we need to get to a point where eventually we can balance the budget. we don't need a constitutional amendment to do that. >> but apparently you do need something to do that, because we're facing a meltdown, you all keep saying, and yet there isn't a deal. and yet we don't have a deal that will raise the debt and forgo a meltdown. what is so wrong with a balanced budget amendment? >> well, just to be clear -- and as the president has said a number of times this week, if not now, when? congress needs to act. it is a question of will. there's plenty of time to make decisions now. >> but the balanced budget -- >> what these ideas do is say let's kick the cans down the road so others will deal with it. the challenge is for washington now do the job the american people sent us here to do. the forum that this constitutional amendment takes is is quite draconian. what these amendments do is not just say you have to balance the budget but it puts in place spending limitations that would force us to cut social security and medicare more deeply than even the house budget resolution. that's not what the american people want. >> what about the balanced budget amendment? >> i think the principle that should be governing right now is that congress do the job that it was sent here to do. the president wants to work with congress. he's shown a willingness to move substantially. we need a partner to work with. we need to get the job done. we need to get the job done now and do as much as we can do. the whole world is watching. this is not just a question of washington politics. the u.s. credit rating is at stake. our place in the world is at stake. we need to act now. >> the debt most needs is a growing economy. and in that nature i want to read you something. our source here is reuters. this is from a goldman sachs report that went out last night. >> this is higher unemployment and lower growth than you all were predibbing. what that means of course is that you can't make a substantial effort towards the debt, as opposed to the deficit, with growth that low, can you? >> look, it has been a difficult few weeks in the economy. there have been some external factors from the nuclear accident in japan to other things that made growth slower. >> sure. >> and there's still a consensus that we will return to growth, but it's not enough growth, and the president's made clear we need to stay focused on growing the economy and creating jobs. >> do you agree that growth is going to be lower than you all thought? i think it's clear that the recent weeks have been slower than have been expected. we're still confident, as are most forecasters, that we will return to growth and that we'll remain a growing economy. but the challenge is -- >> more than you had hoped, though, now looking a it? >> there are a lot of things we could do now that make a difference. we've done quite a lot in the first two years with the recovery act. the president and congress took action without which we'd have millions more people out of work. we have pending proposals on the hill which would do a lot, grow the economy and create jobs. congress should pass the trade agreements that are up there, pass patent reform. the president's made clear that we need to take a look at extending the payroll tax deduction. the average american family has a thousand dollars in their pocket. there are things we can do and we need to work together to get done. >> thank you so much. officer of manager and budget, we appreciate your time. go to the white house. let us know what's going on. we appreciate it. >> thanks, candy. up next, one republican who says his party should consider negotiating with democrats over tax loopholes. as well as they should. sometimes, i worry my pipes might leak. but i learned there's something more i can do. now, i take care with vesicare. once-daily vesicare can help control your bladder muscle and is proven to treat overactive bladder with symptoms of frequent urges and leaks day and night. if you have certain stomach or glaucoma problems, or trouble emptying your bladder, do not take vesicare. vesicare may cause allergic reactions that may be serious. if you experience swelling of the face, lips, throat or tongue, stop taking vesicare and get emergency help. tell your doctor right away if you have severe abdominal pain, or become constipated for three or more days. vesicare may cause blurred vision, so use caution while driving or doing unsafe tasks. common side effects are dry mouth, constipation, and indigestion. so why wait ? ask your doctor today... ... about taking care with vesicare. 3q you could save a bundle with geico's multi-policy discount. geico, saving people money on more than just car iance. ♪ geic but afraid you can't afford it? well, look how much insurance many people can get through selectquote for less than a dollar a day. selectquote found, rich, 37, a $500,000 policy for under $18 a month. even though dave, 43, takes meds to control his blood pressure, selectquote got him a $500,000 policy for under $28 a month. ellen, 47, got a $250,000 policy for under $20 a month. all it takes is a phone call. your personal selectquote agent will answer all your questions ... and impartially shop the highly rated term life companies selectquote represents for your best rates. give your family the security it needs at a price you can afford. call this number or go to selectquote dot com. selectquote. we shop. you save. joining me now from clemson, south carolina, republican senator lindsey graham. senator, thanks for joining us. i think you just heard the director of the office of management and budget saying that he believes that more and more republicans are beginning to understand that default, while an option, is a calamitous option and certainly an onerous option. do you see any kind of coming together of republicans around a way that will avoid default? >> absolutely. i think the house will pass next week, cut, cap, and balance. it does three things. it will take the government spending at the near term back to around 2008 spending levels. it will have a cap on spending over the next decade to make sure we wipe out the debts in a ten-year period, and it will require the passage of a balanced budget amendment out of the congress. and for those three things we'll raise the debt limit. that will be the republican position in the house almost unanimously. i think it will be the republican position in the senate. i would urge every democrat to get in the room and help us craft a -- >> but you can't pass that in the senate. >> there will never be a balanced -- i think so. well, let me just say this. what's calamitous is the track we're on as a nation we're becoming greece. we're borrowing 40 cents of every dollar. we have $53 trillion of unfunded liability. a child born today has $46,000 of debt. so now's the time to do real things that matter. 49 states have things that balance their budget. neither party will balance the budget unless there's some discipline in the system, and the system that will bring discipline is a balanced budget of the constitution which i think will be ratified in a couple years. >> but i must say the jacob lew just told us that the conditions on this balanced budget amendment would require huge cuts in medicare and in social security. they have a majority, the democrats have a majority in the senate. this does not at this moment in its current form sound to me like something that will pass in the senate, then what? >> well, we will negotiate the number of gdp spending is 18%. the balanced budget amendment in the house is going to limit spending to 18% of gdp, which is the 40-year average. but that is subject to being negotiated with republicans and democrats. the super majority to raise taxes is is subject to be negotiated. i don't think what's subject to being negotiated is the idea of avoiding a balanced budget amendment. when the president said we don't need one, candy, what rational person can look at the congress over the last 40 years? graham, rudman, hollins, simpson, bowles. there is no plan going to achieve balance in congress unless the constitution is changed to make us to do it. so i am very willing to raise the debt limit -- >> what happens if you -- let's just say somehow that there is a balanced budget and huge things happen. katrina happens. tornadoes run through all of the midwest. >> right. >> then we start a war and you've got a balanced budget amendment. what happens? >> you can waive the provisions by two-thirds vote of the senate. so if there is a major war or we get attacked, another 9/11, we have a very cataclysmic event that affects our economy either internally or extermly. we can waive that requirement. 49 states have this requirement. candy, i don't see how anybody who's been in politics as long as i have can look the people in the eye and say that within the body we're going to find a way to do this. every two years we jockey for the next election. we never make long, hard term decisions. the big deal they're talking about cutting spending over the next ten years still adds $6 trillion to the debt so the real deal to limit spending and get us in balance would be an amendment to our constitution. without that, we're just going to talk to each other and run america into the ground. >> let me ask you about the so-called mcconnell/reid plan, which is not, as i understand it, completely put together yet. but it would allow the president to to raise the debt ceiling in three increments between now and the end of next year, perhaps with some spending cuts attached. as a last resort, would you vote for that in order to avoid the -- >> i'm sticking with the -- i don't have any confidence that anything that republican or democratic leaders is going to lead to the solutions that we need. it never has in the past. i'm looking for a win/win. i'm looking for a way to raise the debt ceiling and we need to, but we need to address fundamentally what got us into debt. cut, cap, and balance gets us out of debt over a long period of time. we'll have a balanced budget amendment requirement to to stay out of debt. i think that's going to be the republican position. to me it is a sound position. >> it's a position but is it a solution? i mean, i think -- >> i think so. it's the only solution. >> well, it just doesn't -- honestly, it's been out there for a while. we have heard of the cut, cap, and balance. it has not caught steam in the democratic side. you all are staring down the face of this default and say, well, this is our position. as the white house says, here's our position. where is the give. you at one point said you might go for some revenue increases. do you still stand by that? >> yeah. here's what would happen if we had a requirement to balance the budget. both parties would have to do it. there would be no excuses. you would have to do something about entitlement spending. it's 57% of all spending of medicare or social security and medicaid, would have to address that in a bipartisan fashion, would have to make some hard decisions. and i would be willing to close loopholes like the ethanol subsidy. i would be willing to eliminate that, take some of the money to pay down tax rates to create jobs and some of the money to go to retiring the debt. i'd be willing to close loopholes and put some of the money on debt retirement, but i will only do that in the context of a serious plan to balance the budget. >> okay. >> and i have been here since 1995. and i know what's going to happen. if we pass the balanced budget amendment of the constitution, it would get ratified by the states and we would get this country back on track. and if we done do that, we're just kicking the can down the road. >> if i could get a yes or no here, because we're running out of time, if you cannot -- >> sure. >> -- get the senate to what is what the house surely will this week, you will allow the u.s. to go in default or you will go to a plan b. which? >> i'm going to focus on plan a. that to me is the only plan that will work. it's the real deal, not a big deal. >> well, if it helps at all, the white house isn't budging either. it's just hard to know how you all are going to come to any kind of agreement. senator lindsey graham, thanks for joining us this morning. >> thank you. up next, why rudy giuliani is considering another run for president. >> i think that i probably have the best record in terms of having done something similar to what the country needs done right now. candy? um-- well, you know, you're in luck. we're experts in this sort of thing, mortgage rigamarole, whatnot. why don't we get a contract? who wants a contract? [honks horn] [circus music plays] here you go, pete. thanks, betty. betty: we're out of toner. announcer: if you're facing foreclosure, talk to the right people. speak with hud-approved housing counselors free of charge at... ♪ sing polly wolly doodle all the day ♪ ♪ hah in the republican presidential field, we've got a handful of not quite candidates conducting uncampaigns, which is sometimes a prelude to a real campaign and sometimes just an interesting activity or maybe a way to drive up speaking fees. rudy julia thisny is one of the not quits. when he launched his first presidential bid in 2008, the former new york mayor went right to the top of the polls. but early results were disappointing, putting it mildly, and he dropped out after the first few primaries. he is no early bird this time around. the man who gained national prominence and accolades for his in your face, take-charge approach during 9/11, is patient now on this new journey, shaking hands, listening, holding private meetings in new hampshire. he says he'll decide by september. whether it's his new approach or the familiarity of his name, giuliani is doing all right in new hampshire. currently third in a recent american research group poll behind mitt romney and michele bachmann. i caught up with rudy giuliani at a harley-davidson dealership in new hampshire. as well as they should.t dk sometimes, i worry my pipes might leak. but i learned there's something more i can do. now, i take care with vesicare. once-daily vesicare can help control your bladder muscle