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CNN "The Situation Room" Transcript: The Fiscal Cliff Debate

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BLITZER: Go over the cliff.

Very quickly, Dana, that 72-hour rule in the House, I believe there's a rule that they have to have 72 hours to read legislation before they vote. Are they going to waive that rule?

BASH: What do they say about rules? They're made to be broken, Wolf. I think that's safe to say. They would waive that rule, yes.

BLITZER: OK. All right, Dana, stand by, because we have two guests joining us right now, two key senators, Republican Senators John McCain of Arizona and Lindsey Graham of South Carolina.

Senators, thanks to both of you for coming in.

Let's go to Senator McCain first.

I know you were angry at the tone of the president's comments today, but give us your sense. Are you going to vote for this legislation, assuming there's a deal?

MCCAIN: Well, it depends on the deal, obviously.

But if it does not have at least a delay in implementation of sequestration, which the secretary of defense has said will be devastating to national security, then I probably cannot vote for that, unless that's included in the deal.

BLITZER: What if it's a two or three-month delay, sequestration going into effect, in other words, those billions of dollars in defense cuts that are supposed to go into effect right away, if it's delayed for two or three months, is that good enough to get your vote tonight?

MCCAIN: I think I would have to see the rest of the package obviously, Wolf. And I want to support anything that would avert what's going to happen if we don't act.

But at the same time, I can't vote for something that I think -- and I agree with the secretary of defense and the chairman of the Joint Chiefs of Staff -- that would devastate national security. But I could certainly support a delay in its implementation. But I would have to -- I would also want there to be a specific date for us acting on sequestration.

BLITZER: Senator Graham, I know you agree on that specific issue with Senator McCain.

But you know we are now technically going over the fiscal cliff, because the House of Representatives is going to adjourn. They're not going to consider anything that you guys in the Senate might pass at least until tomorrow. So from your perspective, what does that mean, Senator Graham, that the country, the United States, is now going over the fiscal cliff?

SEN. LINDSEY GRAHAM (R), SOUTH CAROLINA: I just think it shows the dysfunction of the political system.

And back to the president's performance today, that was pretty unusual, to have a -- kind of a pep rally in the middle of negotiations. What John said about defense cuts going into effect, shooting the military in the head, according to Secretary Panetta, is real and true.

But I want to cut $1.2 trillion over the next decade. We're going to spend $46.5 trillion. It's not hard to find $1.2 trillion. I just don't want to destroy the Defense Department. So if you delay the cuts, you're going to lose votes in the House. You're going to lose votes in the House because people in the House want to cut the government. I want to cut the government. I just don't want to destroy the Defense Department.

BLITZER: Do you have any idea, Senator McCain, as we speak right now, when the Senate will vote on whatever agreement has been reached?

MCCAIN: Well, I think there's hopes that we vote tonight or tomorrow.

I know there are concerns about the sequestration aspect of it. We're also very concerned that there's no spending cuts associated with a tentative deal. But there's no doubt that the president -- a little straight talk, Wolf. The president has won the election. He does have an advantage here.

He has a larger approval rating than the Congress does. But that doesn't mean that we sacrifice principle. And sequestration to me is a principle.

BLITZER: That's a very important issue. But I assume they're going to work out an arrangement that they will delay that sequestration, those automatic defense cuts, at least for a few months. Presumably, that will allow -- I assume that will allow you, Senator Graham, to go ahead -- and you might not be thrilled with this compromise, but if it's $400,000 for individuals, $450,000 for couples, that would be acceptable to you, and let the -- those people earning more than that a year see their tax rates go from 35 percent to 39.6 percent?

GRAHAM: Hat's off to the president. He won that argument.

Bowles-Simpson didn't raise rates. They eliminated deductions to generate revenue. The gang of six did the same thing. Raising rates is a solution the president came up with. It's not bipartisan, but I would vote for the deal you just described.

Back to sequestration, we promised the American people in August when we raised the debt ceiling by $2.1 trillion, we would offset the debt ceiling with a dollar-for-dollar cut. The $1.2 trillion, the super committee's failure to find those cuts, was part of the Budget Control Act deal in August of 2011. If we set aside those spending cuts, we broke our promise to the American people to pay for more borrowing. So I think you lose a lot of votes in the House if you don't offset sequestration for at least a couple months, not just delay it.

BLITZER: Does it make any...

(CROSSTALK)

MCCAIN: Could I...

(CROSSTALK)

BLITZER: Yes, go ahead, Senator.

MCCAIN: Wolf, the president, during the campaign and just before said sequestration won't happen. He didn't say it might not, didn't say - he said it won't happen. So I hope he would keep to that pledge in these negotiations that are going on.

GRAHAM: Can I just add something, Wolf? We've made about 10 different proposals to offset the effects of sequestration on the Defense Department and other areas of the government until March of this coming year, that's about 22 billion. They say "no" to everything. We've got three and a half trillion dollars to choose from and trying to find and offset for three months, it's ridiculous. You can't find an offset for three months.

BLITZER: Are you going to use the raising of the debt ceiling in February or March, Senator McCain, as leverage to get what you want from the President?

MCCAIN: I think there's going to be a whole new field of battle when the debt ceiling rolls around. Most of us have pledged that we're going to have to, before we vote again to raise the debt ceiling even though it may be a great political cost, we've got to address spending. And that meant entitlements. We've got to sit down together and get us back on a path. Look, we just added 2.1 trillion in the last increase in the debt ceiling, and spending continues to go up. I think there's going to be a pretty big showdown the next time around when we go to the debt limit.

BLITZER: Yeah, well there will be another round of fighting to be sure. Let's see what happens of the next 24 hours, but it's clear right now since the House is about adjourn that the U.S. is going over the fiscal cliff at least technically. We'll see what the Senate does tonight if anything, what the House of Representatives does to follow. The stakes, as all of us know, are enormous. Senators, thanks very much for joining us.

MCCAIN: Thank you.

GRAHAM: Thank you.


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