MR. HARWOOD: Senator McCain, thanks for joining us and nice tie.
SEN. MCCAIN: Thank you, John. You've got good taste.
MR. HARWOOD: Let me start with the broadest possible question. What do you say to the argument that, as someone whose expertise and instincts are in national security, that you're the wrong guy to be president at a time the economy is turning down?
SEN. MCCAIN: Well, my instincts and my knowledge and my background exceeds most people. I've been involved in these issues for many, many years. I know the issues. I know the economy.
MR. HARWOOD: As you know, some of your own remarks fueled that issue -- that you didn't know so much --
SEN. MCCAIN: Well, sure, that's one of the things that happens occasionally in long conversations. I am, obviously, very knowledgeable on national security issues because I spent 22 years in the military and have been involved in those issues.
I've been heavily involved in economic issues since the 1980s. I was there when we began the greatest period of economic prosperity perhaps in America's history, when we were in terrible economic shape under the Jimmy Carter administration.
So I'm very familiar with the issues. I'm knowledgeable. And I'm very confident of my ability to steward these policies. And one of the areas that I've been a leader on is cutting spending, removing earmarks, keeping taxes low and doing the things that are necessary to make America's economy grow.
Our problem is not a lack of tax revenues; our problem is spending. Since we had a balanced budget agreement with then- President Clinton in 1998, government spending has increased by 70 percent. Revenues have gone up, but it's spending. I know how to attack wasteful spending and I know how to make the government more efficient.
MR. HARWOOD: Let me ask you about consistency on that score.
SEN. MCCAIN: Sure.
MR. HARWOOD: You opposed President Bush's tax cuts in 2001 in the name of fiscal responsibility --
SEN. MCCAIN: Yes.
MR. HARWOOD: And also some of the benefits went too much to people at the top.
SEN. MCCAIN: Let me just correct that. I opposed it for that. I would have liked to have seen more middle income tax cuts. I had a tax cut proposal of my own, but it also kept spending under control, which is the key to the problems we have. We've presided over the greatest increase in government since the Great Society.
So I would have had as Ronald Reagan did, spending restraint along with tax reduction. If you're going to grow government, you're going to increase spending and you're going to lay on the next generation of Americans -- a very huge deficit.
MR. HARWOOD: But now you're for those Bush tax cuts, even though the spending hasn't been cut. You've got new ones, $100 billion in a corporate rate cut, $60 billion to double the child exemption that you've talked about in your speech today, another $60 billion to get rid of the AMT and now this new gas tax holiday you're talking about.
Does that mean that you've decided at this point, fiscal responsibility is just not as important to you?
SEN. MCCAIN: No, John, as a matter of fact, we could eliminate $35 billion in the last two years that the president put in earmark projects. You can eliminate the $60 billion that are already in there. That matches you up right there, not to mention all the cuts we could make in savings and defense procurement, I mean, we contracted to buy a littoral combat ship that was supposed to cost $140 million and it ended up costing $400 million and we scrapped it.
There are so many savings that could easily make up for that, and by the way, these are such as the AMT are phased in over a ten-year period. We understand that. We will have a balanced budget if I am president of the United States within eight years because we will have fiscal discipline. It's not taxes that are too low; it's spending that are too high. That's a fundamental difference between myself and Senator Obama and Senator Clinton.
MR. HARWOOD: On this issue of gas tax --
SEN. MCCAIN: Sure.
MR. HARWOOD: Oil prices hitting new records now. But aren't high gas prices something that would cause Americans to use less gasoline? And isn't that something that the economy needs to have happen in order to have the market kick the United States of its addiction to oil?
SEN. MCCAIN: I think high gas taxes are a regressive tax. Who drives the furthest? You spend a lot of time in Washington, DC. The people who live closest to work are the wealthiest who live in Georgetown. The people who drive the furthest are the lowest income Americans.
It is incredibly regressive. Where is the fairness? Where is the fairness there? Americans -- look, not only are they spending too much on their gas, but we as a nation, we're sending $400 billion a year to countries that don't like us very much and money ends up in the hands of terrorist organizations. It does. And it's a national security issue, not to mention our need to adopt green technologies.
So, again, Americans are not under-taxed, whether it be at the gas pump or whether it be when they fill out their tax return. That's the difference between us and in all due respect, again, someone thinks that we ought to increase taxes on gas, they are laying a heavier burden on the lowest income Americans and I don't think that's fair to America.
MR. HARWOOD: Let me ask you about the housing mess.
SEN. MCCAIN: Sure.
MR. HARWOOD: You have supported the federal intervention in the case of Bear Stearns, saying that it was necessary to prevent systemic failure in the market. But as far as individual homeowners goes, you have provided a plan to help write down some mortgages and have a federal back stop there, but you've defined it relatively narrow. Your aides say, perhaps as few as 200,000 homeowners might be affected. There are two million homeowners who are now facing foreclosure.
If this is a viral problem as you said, why isn't that systemic risk enough to justify a broader approach to the problem than you've supported so far?
SEN. MCCAIN: Well, first of all, I think that corporate greed and excess and corporate compensation as I mentioned in my remarks is unacceptable in America and I'm not sure if corporate America understands how bad their reputation is today because of it. When we have a major organization turn down a shareholder, non-binding resolution on executive compensation, there is something badly skewed.
MR. HARWOOD: Do you think shareholders, by the way, should be able to vote on the sort of pay packages that CEOs --
SEN. MCCAIN: Absolutely.
MR. HARWOOD: So you're in the same place as Obama and Clinton on that issue?
SEN. MCCAIN: But I've been there for a long time. But I think the point is that shareholders ought to have, obviously, more say. That's the excuse and rationale for the system we have today and I think they should be the ones that punish. But in the case of the overall situation, Bear Stearns probably would have if they had collapsed, had a ripple effect that would in the end hurt those homeowners because of the devastating effect it would have on the economy.
The key is transparency. The key is knowledge. The key is better oversight of these institutions. The key is understanding the global economy when the subprime lending crisis affects a town in Norway; we're in a very different world than most of us grew up in. But I believe when you're talking in my view, it's 400,000 homeowners. This is a great beginning. But you also don't want to reward people who were part of that misleading of the American people that bought homes on pure speculatory reasons and left them empty in the belief that they would flip them a couple of years later.
I want to hit the people who are most deserving first and most effectively, then, if there are other things we can do and there are. We've passed a stimulus package. We've taken other measures as well.
MR. HARWOOD: Let me ask you a couple of things quickly because we're short on time.
SEN. MCCAIN: Sure.
MR. HARWOOD: Delta and Northwest --
SEN. MCCAIN: Yeah.
MR. HARWOOD: Look like they're now going to merge. The airline industry has been in deep trouble. Is that the right answer, consolidation for both the industry and for consumers?
SEN. MCCAIN: We've also seen four or five airlines go under as you know just in the last couple of weeks. The airline industry is in trouble and part of this goes back to fuel costs. This goes back to an absolute vital requirement we become independent of imported oil. These things are not disconnected.
I'd look at it carefully. I think you're probably going to see more consolidations in the airline industry.
MR. HARWOOD: And that's okay with you?
SEN. MCCAIN: It's not particularly okay. We have to look at market shares and all of that kind of stuff. We're as a nation, we're the best in the world, but I also want to emphasize another thing. We have consistently failed to fix the FAA, both as far as the air traffic control system is concerned or their inspection and safety procedures. We can't have a reoccurrence of what just happened with American Airlines. It's devastating to so many ordinary citizens.
MR. HARWOOD: All right. Let me ask you -- if you lay spending aside.
SEN. MCCAIN: Yeah.
MR. HARWOOD: It sounds as if you're saying that on the biggest issues, taxes, trade, regulation, that President Bush has gotten it right. Is that what your view is?
SEN. MCCAIN: Spending -- its gotten terribly wrong. I can't tell you the number of times I said veto this bill, veto it, veto it.
MR. HARWOOD: But on the other issues -- taxes, trade and spending.
SEN. MCCAIN: On trade, of course, I'm a free trader. I think he was right on trade. But when you say right on taxes, that's like saying, you know, you're half right when you send -- a huge problem and you only address half of it. On trade, absolutely, and I will defend free trade forever and I'm a student of history and I know history and I know what has happened to this nation when we have adopted protectionist measures and they've been devastating.
In the Colombia Free Trade Agreement being turned down sends a message throughout the hemisphere and when a candidate for president says they're going to unilaterally renegotiate a treaty, that sends a message to the world that our word may not be good depending on who the President of the United States is. It's terribly disturbing.
MR. HARWOOD: Senator McCain, we've got to leave it there. Thanks so much for joining us.
SEN. MCCAIN: Thanks, John.