MR. ISAACSON: All right, let's hear it from the back. Hold on. Tom, would you bring back the microphone?

It's part of Bob Schieffer that he really doesn't want to give up that microphone. I'm Walter Isaacson, I know it's a disappointment that I'm not Gwen Ifill, but it's 104 degrees and there are storms all from Washington. I think there's a million houses without electricity and also the airport wasn't working. So I'm subbing, I'm sort of the Ray Suarez of this thing, when Gwen Ifill can't, hers.

We have as our guest, Valerie Jarrett, the senior advisor to the President of the United States both for intergovernmental affairs and public outreach.

(Laughter)

MR. ISAACSON: That makes her one of the most important and influential people in Washington. She is also one of the smartest people in Washington. But Washington has a lot of powerful and smart people. She's also a very nice person. In the Venn diagrams of being nice, powerful and smart, there's only a few people in Washington like that, Valerie Jarrett is one of them. Thank you for being here.

MS. JARRETT: Thank you. Thank you, Walter, Good afternoon everybody, I'm delighted to be here.

MR. ISAACSON: Where were you when you heard the health care ruling?

MS. JARRETT: Oh, now, that's an interesting story, because as you know in Washington lots of things leak. Yeah, that's no surprise to anyone. So everyone was very surprised that we didn't actually have a heads-up and we did not.

So I was sitting in the office of Kathy Ruemmler, who's the White House counsel, with the former White House counsel, Bob Bauer, with Kathleen Sebelius and with her former general counsel, Mark Childress. And we all had our iPads out, tuned into SCOTUSblog, and we're watching every single second as it came out. So fortunately we were not looking at CNN, so we missed that scare. But somebody rushed in and said to Kathy, CNN just reported it, and so she thought well she better scoot down to the Oval House and make sure the President had the facts, and so off she went to tell the President.

MR. ISAACSON: How did it make you feel?

MS. JARRETT: Oh my goodness, well, I woke up that morning knowing it was a historic day, and just thinking, you know, in a few hours the Supreme Court is going to make a decision that's going to be historic for our country. And so the first thing I thought about was just how many lives will be improved, the quality of health care for so many millions and millions of Americans as a result of the Supreme Court's decision.

(Applause)

MR. ISAACSON: The decision limits the expansion of the Commerce Clause however, and that really brings up something that Governor Daniels and we've been talking about a lot, which is the role of the federal government, how big and how expansive can it be. Do you think that it's gotten too big that there should be now a pause on how far the federal government should intrude?

MS. JARRETT: Well, actually, I think the paradigm is not wrong. I'm not sure -- not right -- I'm not sure whether it's too big or two small. I think we should step back and say what purpose does the federal government serve, what's it there to do. It's not there to solve all problems, it's certainly not there to create problems.

But we are a society where we cannot make it without some help from the federal government. I mean, look at our roads, our bridges, our technology, the research grants, the technology advancements, there's so much the government does –- education, innovation. And so I think the more appropriate question is not how big or how small but smart, and what is the role for the government to play if we're going to be the kind of society that the United States has always been and that we hope to be in the future.

And so I think you might want to ask the question a little bit differently. And I think forward the choices that we're going to have is vision for the future that involves the role of government. And I think government should only cannot do on our own. That's where I begin.

(Applause)

MR. ISAACSON: And tell us where that will take you on health care now that this law has to be tweaked and we have to implement it?

MS. JARRETT: Well, so –- just so that we have a broad understanding and making sure that everybody is clear on what the Affordable Care Act will do, for the 250 million Americans who already have health care what it will do is provide you with more security and certainty.

And so, for example, the insurance companies will not be able to impose lifetime caps or drop you when you're sick. Right now, children with preexsisting conditions have to be covered, and if you're a parent with a sick child, you shouldn't have to worry about whether or not your child is going to have health insurance.

Preventive care will be covered for free. So many people don't have the kind of regular check-ups that they need because they can't afford the co-pay. And so now whether it's mammograms or prostrate screening or check-ups, all of that will be covered for free. So we're trying to –- the whole design was to incentivize people to have good health.

In addition to that in 2004 once the –- 2014, once the exchanges are set up then we will cover everyone with preexisting conditions. And so the insurance companies will have additional people in the marketplace and that will allow them to insure everyone whether you're sick or not. And that's also important.

Something that was viewed controversial but I think is really an important part of the health care plan and it was what the Supreme Court ruled on most importantly, was that the view is that everyone who can afford health insurance should have it. Why is that? Because if you go into an emergency room and you don't have health care coverage and you're treated, who's paying for that? We are, we all are in the form of higher premiums.

If you go into a public facility and you're treated, who's paying for that. The taxpayer is. And so we wanted to create an incentive for everybody who could afford insurance to get coverage. If you don't and it's your choice, well then you have to pay a penalty because the sense is that if you're –- otherwise you're just free- riding on the system and this is one where everyone should act responsibly.

Young people get to stay on their parent's plan. My own daughter when she finished school there was a gap between school and the time that she started work and so she was able to come on my plan. Now before she knew that she was out researching how much it was going to cost her to get health insurance, and she called me up and she said, mom, it's going to cost me a fortune. I said, no, darling, thanks to the Affordable Care Act you can come on my plan along with six million other young people already.

And then you know my mom is a senior citizen, she wouldn't like me to call her that but she is 83, and senior citizens on average have already saved $600 to help on their prescription drugs. And so every component of the plan was designed to make sure that all Americans have access to affordable quality care. It's just that simple.

(Applause)

MR. ISAACSON: The President acted unilaterally and somewhat surprisingly on immigration about a month ago. Why did he do that and why haven't we been able to get a comprehensive immigration?

MS. JARRETT: Well, that's a very good question. Just to give you a little historical perspective, during the last campaign when President Obama, then Senator Obama, was running, his opponent Senator McCain was supportive of immigration reform along with President Bush and along with 10 other Republicans in the Senate. And yet they weren't able to get comprehensive immigration reform done.

So the President made it very clear that this was going to be a priority for him, and he thought given the track record in the past we could get some momentum going. Unfortunately, we were not able to do that for comprehensive immigration reform. In a lame-duck session 2 years ago, came up before Congress the DREAM Act, which would be just to allow young people who grew up in this country, thought they were American citizens –- many of them didn't find out until they applied for a job or tried to get in certain colleges that they weren't American citizens –- stick -- put them on a path to citizenship and unfortunately we weren't able to get a single Republican to vote for that.

And so we've been consistently reaching out and trying to engage in a dialog with members of Congress to solve the comprehensive immigration challenge. It's not going to go away and we have to do something about it. And the President has felt very strongly we are a nation of laws and we are a nation of immigrants and we have got to tackle this issue.

I have met maybe a year-and-a-half ago with about four DREAM Act kids –- I call them kids, they're actually young adults. They walked from Florida to

Washington, walked. And they wanted to see the President. And of course they couldn't come into the White House, because they're here illegally and they would have been picked up.

And so I ventured across the street, across the park to a church, and I met them in the church. And I've now met with them four or five times. And each time I would leave in tears, because they are exactly the kind of people we would want in this country. They work hard, they love their country, they want to be school teachers, they want to serve in the military, they want to run businesses, they have innovative ideas. They are the best that we have.

And the President's frustration with the fact that he couldn't get Congress to act on the DREAM Act just got to the point where he said I'm going to have to do what I can do. Now it's not a solution, it's stopgap measure. They're not on a path to citizenship. They can stay here. Every two years they have to reapply, so it's not the solution. But you cannot look into the hearts of these young people and say there's nothing we can do when we actually did have the power to do something.

(Applause)

MR. ISAACSON: I embarrassed him, but I see John Doerr here. And when John Doerr set up, as many other people have, businessmen meeting with the President of the United States, business leaders meeting with the President, people from Silicon Valley, one of the things they kept pushing is why in the world, when people get a really great education and they become engineers and they get to help our economy, at that point we can't give them visas we just kick them out. Why don't we staple a green card to it.

And if I remember -- you can tell me if I was wrong -- the President's basic answer was you can't do that separate from the DREAM Act for these kids. Now that we've done the DREAM Act, partial solution, why don't we find a way to have that part of our immigration policy changed? A lot of have had that you topic came up for conversation. Absolutely, we should figure out a way to staple a green card, absolutely we should do that and it does require an act of Congress. That we can't do without the support of Congress. But I think we could do that at the same time as we let these DREAM Act kids be on the path to citizenship. Now that we've taken the first step administratively let's package the DREAM Act with high-skilled immigration and we could get that done in five minutes. That's how long it would take to get that passed.

(Applause)

MR. ISAACSON: But I'm sorry, why don't we? I mean why don't you do it right now?

MS. JARRETT: You can tell I'm in California -- you are from Silicon Valley. Well, John and I this discussion. In fact, the infamous dinner discussed in your book about Steve Jobs, that

MS. JARRETT: We should. I mean believe me if I could wave a magic wand and get Congress to do what I want them to do, I would. It has to go through Congress, we

cannot do be a push that administratively. MR. ISAACSON: No, I know but why couldn't that -– MS. JARRETT: It could –- MR. ISAACSON: -- bipartisan right now? MS. JARRETT: It could. It would be a terrific push if we could get it done. We've got to find –- MR. ISAACSON: And they'd be willing --

MS. JARRETT: -- Republicans who are willing to do it. I can assure you the Democrats would support that, we just have to get the Republicans to do the same.

MR. ISAACSON: Well that gets back to the question of the tone, the partisanship, the divisiveness that came somewhat as a surprise because three-and-a-half years ago we nominated the two candidates who seemed less divisive –- in McCain, Senator Obama, people who'd worked across the aisle. I don't want to get a whole lot of finger-pointing looking back saying here's who to blame for it. But looking forward, how do you change this tone so that if there is a second term you can have a government structure that's not just knee-jerk partisan.

MS. JARRETT: Well, that begins with all of you. It really does, because I think Washington has become detached from all of you. There are so many initiatives that the President presented to Congress that had popular support, and yet, we weren't able to get Congress -- frankly, the Republicans in Congress, to act. I think after the next election when the goal isn't –- let's assume that President Obama wins -- and the goal is no longer "Let's try to keep him from getting a second term," and those aren't my words, those are the words of the leadership of the Republicans in Congress, when that's no longer the goal, if he's reelected, I think it kind of breaks the fever.

And there are some tough challenges that we have, bringing down the debt for example, figuring out what we're going to do to improve our public school system, figuring out how to make sure that our businesses here in the United States remain globally competitive, comprehensive immigration reform –- we have a lot of work to do. All of those problems are solvable if we have elected officials who come to the table in good faith and want to solve them. There's nothing we can't do if we put our minds to it.

And so we are hopeful that in the second term that the tone in the country will be one that puts pressure on Washington to do the right thing. Just to –- and I'm sure Secretary LaHood talked about this when he was up here because he talked about the importance of transportation and the fact that the transportation bill passed. And that's terrific, and it's going to create jobs and it's so important to improve our infrastructure around the country.

But also in that bill was the provision that we've been working on now for weeks to make sure that the interest rates on student loans didn't go up. Well the only reason why that was included in the bill is that so many young people particular around –- particularly around this country put pressure on their elected representatives to include it in the bill. And so I think we're going to see a lot more involvement like that with all of you around the country who are going to say wait a minute, I want you to be there to solve the problems that we have and to work constructively.

And these are not partisan problems, these are challenges that are American challenges and they're ones that we should be facing together.

(Applause)

MR. ISAACSON: Thank you –- Governor Daniels, others have said that this is the most important defining election of a lifetime. I'm not sure that's right, being an amateur historian, but I wanted your take on that. And if so what is the great question that's supposed to be determined in this election?

MS. JARRETT: I agree with Governor Daniels completely. I think that the last election was important and in a lot of ways it was historic, but I think the next election is really pivotal and I think what we have before us are really two very different visions for America. And I believe President Obama's vision starts with being an optimistic vision.

The question was asked of Governor Daniels you know is the –- is the American dream still possible, is it still alive? We very much believe it is. And the President's vision of the dream is one where everybody gets a fair shot, everybody acts responsibly and does their fair share and everybody plays by the same set of rules and one where the government is there to support everybody being able to reach that goal.   And so it's one where we do invest in education. We do set standards so that our children who are in our public schools are being funded in a way that creates an incentive for performance and good teaching, because we want them to finish school able to go to college, able to join the work force prepared for the jobs of the future.

And that's why for one example, in Race to the Top the president created an incentive for schools that focused on science and technology and engineering and math programs geared towards girls, because too many of our young girls are not going into those fields.

And so he believes that that's one of the roles of government is to try to make sure our work force is prepared. We have a whole initiative on our community colleges to make sure we're working with the private sector so that the community college curricula is preparing the young people or the older people whoever is in the college system for jobs when they finish. So many people go through programs and at the end there's nothing waiting for them because the curriculum wasn't designed by people who actually create the jobs. And so that's part of the president's vision. Immigration reform is part of his vision. Making sure that we have the platform for laboratories of innovation, investing in science, investing in new technologies, making sure that our companies who can't afford to do some of that initial research we're helping fund it, whether it's medical breakthroughs or technology breakthroughs, these are all the things that we believe a government should do if we want to be competitive.

And then there was the conversation earlier about the tax system. We welcome a conversation about tax reform and I was heartened to hear a lot of what Governor Daniels was saying. I would differ with him on one thing. He said that President Obama believed in a "trickle-down" theory. He actually doesn't. The President believes that our tax system should be much fairer where those at the top do pay a little bit more; the middle class who is struggling right now as we come out of this recession, they should have tax advantages; we should have a fair equal system, a broader base, get rid of the loopholes, we talked about that. If you're using the tax system to ship jobs overseas we don't think you should get a tax break. If you're bringing jobs back and investing here in America, we do believe that you should –- the tax system should work for you.

So these are –- this is the President's vision and I think the alternative vision and you need look no further really than Paul Ryan's budget as one where you reduce the taxes of the very upper income under the thought that it will trickle down. Well we've tried that before and it didn't work.

Another part of their vision is let's get rid of Dodd-Frank, let's get rid of all these regulations. I would have to correct one of the things Governor Daniels said. We've actually had fewer regulations under President Obama and in fact for the first time –- for the first time our President has asked all of the agencies including the independent agencies to do a look-back at all of the regulations on the book. Because what –- companies will tell you it's not that one last regulation, it's the cumulative effect. So let's clear out all the stuff that is nonsense.

In the President's last State of the Union he mentioned that we regulate milk the way we do oil. Well you know what, we don't really need to do that. There's a lot of stuff that's on the books that we're going to clear out of the way which will save businesses billions and billions of dollars.

So if we believe in a future that's optimistic, that looks forward, that believes government does have a role, that we should be investing in our young people for a future that's optimistic, if you believe in a fair tax system -- well, then that's one direction. And if you believe that really the best solution is to preserve and reduce the taxes for those of the very wealthy and get rid of regulations so we can have another economic meltdown, well, we just tried that, and you know what, it didn't work.

(Applause)

MR. ISAACSON: But the –- it sounds like a great vision, but so many businessmen and others have said that the message has become one of class warfare, attacking the rich, attacking people who make a profit, people who make jobs. Why is it that that tone has been set that people believe that this is a class warfare?

MS. JARRETT: Well, they may be watching one particular network.

MR. ISAACSON: CNN? (Applause) MS. JARRETT: No. I mean the President --

anyone who's heard him speak, he always says this isn't about class warfare. We are a country that has the best companies, the most innovative companies. We are the envy of the world. We cherish and want to nurture success. We just want to make sure that everybody has the opportunity to be successful, that it shouldn't be reserved for just a very few.

This is a country that was built on a strong middle class. If we have a strong middle class, that's good for business. If you are hiring somebody at a company you want to make sure that they come into your business qualified. So they should have a good public education. So we celebrate that, but what we're also saying and there is a lot of support for this among people who have done really well, is that those folks could afford to pay a little bit more if they believe, if they have confidence that that money is going to be invested back in our future. And that's what this is all about. This is not about class warfare. This is about shared obligation for society in order to make sure that our country is a healthy country with a bright future. That's what it's about.

(Applause)

MR. ISAACSON: General McChrystal talked very elegant –- eloquently about national service. Why hasn't that become something –- or what should we be doing on national service and why hasn't that become a focus of this administration?

MS. JARRETT: Well, it is a focus of this administration, and I'll tell you where I find –- and let's not just say national service, let's call it "service." Where I think it begins is in neighborhoods, in communities. And I think it begins by example. And so folks who get involved in their local community organizations, who go to meetings at night whether it's the PTA or whether it's a block club, whatever it is, you get a sense of a shared responsibility and that you are a part of something bigger than yourself. It's what drew me to government service.

It's a sense –- I was practicing law and not that there's anything wrong with practicing law in the private sector, but it just didn't make me feel as fulfilled as I felt in my little cubicle in City Hall in Chicago. And so everyone should find what is most fulfilling to you. And it can begin at the community and then it can also take place at the national level. And I think that if you –- but you need that ground connection in order for it to be most fulfilling.

MR. ISAACSON: But do you think it should be expected the way it was in my father's generation that what –-

MS. JARRETT: I think it should. Whether it's required, that I'm not sure. And it's something we should have a conversation about. But I think it should definitely be expected, because it's about the –- it's a part of the social contract. It's what makes us a society is that you have an obligation beyond yourself, the sense of, you know, I am my brother's keeper, I am my sister's keeper. And it really feels good. People who do it enjoy it, and so figuring it out at the national level, how we can have that conversation happen at the local level, I think, is very positive.

My daughter, when she was in high school, her school required community service, and they all rolled their eyes in the beginning, because you know, sophomores in high school are thinking about very little other than themselves. But after a few weeks of volunteering in an AIDS clinic she came home a different person. It changed her life. And it doesn't take much, it just takes a little. So one of the things we have to do is to figure out how to expose, particularly our young people to it. And they mirror what their parents do. And so if our –- if we do it too then that's another way of encouraging our young people.

MR. ISAACSON: Last question is a personal one. You serve a very unique two-hatted role. Very close personal friend for a long time of the President and also a government official, senior advisor. What is it like for you each day to be the President's personal friend and to be that -- have that be part of your duties?

MS. JARRETT: Well, I will close maybe with a story. In the last campaign, I traveled extensively with then Senator Obama, and the primary, as all of you will remember, was long and hard and hotly contested -- and we're so delighted now to have Secretary Clinton as our sectary of State. How about a round applause for her; she is amazing.

(Applause)

MS. JARRETT: And she was relentless. And so, in the dark days of the Texas primary, one morning, I was with the President. We were just leaving Texas and we'd been in the same hotel for about three days. And we went up and down in the elevator and an elderly black gentleman took us up and down each time. And so our last morning we were leaving early, and then Senator Obama had a cold. He's not actually a morning person -- don't tell him I told you that -- so he was a little grumpy.

So we get in the elevator and this gentleman clears his throat. And I thought, "This is actually not the time to strike up a conversation." So he says, "Sir, I'd like to give you something." And Senator -- then Senator Obama said, "What?" And of course we are all nosy, so we are peering in to see what he's about to give him. And it was his military medal. And we looked at it and the President said, "Oh, there's no way I could expect that." And the gentlemen said, "No, I insist." And they go back and forth and back and forth, and finally the gentleman said, "Sir, I've carried this medal with me every day for 40 years, and it gave me the strength to serve our country. It's given me the strength to perform this modest job and you have a tough journey ahead of you" -- little did he know.

And he said, "And so, I want you to have this." Well, of course I burst into tears. And the President put it in his pocket. And later that day, I said, "What did you do with that medal? You know, how did it make you" - -"No, what did you do with it?" And he said, "I put it in my pocket." And I said, "No, no, don't be a guy" -- I mean, "How did it make you feel? You know, this is somebody giving you something they've carried for 40 years, what did that do?"

Because at that weren't doing those kinds And he said, "I put it in point it was early on, people of unbelievably generous acts. my pocket." And then he saidlet me show it and he pulls out of his pocket about 10 other trinkets and he tells me the story about who gave him each one, where he was and what the circumstances were and why he put it in his pocket and why he treasures it, just as he treasured that gentleman's.

And every morning when I drive through the gates of the White House for the last 3-1/2 years, I think about him. And I think about his unselfish act, his service to our country, his unselfish gesture and belief that there was a better tomorrow. And that this person, President Obama, could be a part of that vision. And that he was playing a small role in helping to fulfill that vision.

And so, to have the honor of serving somebody who has been my close friend for 21 years, who I passionately believe is leading our country in the right direction under the most difficult circumstances, it's the honor of a lifetime. But every day when I think about that man, I say, "He is the reason why we are there." And that's what enables us to kind of put up with the Washington nonsense and the -- you know, the distortion of his vision, because we're there to serve that man. And so to be able to do that next to my friend, life just doesn't get any better than that.

MR. ISAACSON: Valerie Jarrett, thank you very much. Appreciate it. Thank you.