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MS. BARTIROMO: I'm here in New York with Senator John McCain.

Nice to have you on the program, Senator.

SEN. MCCAIN: Thank you, Maria. Thanks for having me on.

MS. BARTIROMO: Let me begin broadly about the economy. We are in a slow growth period, plus we're facing inflation: oil, food. What's your plan to take us out of this?

SEN. MCCAIN: Well, there's a variety of things we have to do. You just used up the whole hour. But look, we have to keep taxes low. We have to make sure that we go to alternate fuels -- I think wind, solar. Nuclear has got to be accelerated. We can find a way to either reprocess or store spent nuclear fuel. We have to make sure that we're not going to increase taxes.

We've got to maintain our commitment to free trade. I know that you know that one of the really small bright spots -- and maybe it has to do with the weakness of the dollar, which is a concern -- is our exports, is our exports, okay. Senator Obama said he wants unilaterally -- unilaterally -- renegotiate the North American Free Trade Agreement. I am a free trader. The Colombian Free Trade Agreement, what message do we want to send?

But what I'm saying there -- how that affects our economy -- it opens up goods -- markets for the most productive workers in the world, American workers and goods and services. And we profit by importing from them as well. So we got to reemphasize our commitment to free trade, but we're going to have become independent on foreign oil. We have to extend the unemployment benefits. We have to -- there's a lot of things we're going to have to do to think outside the box, because we all know Americans are hurting and hurting badly, and maybe more badly than they've hurt in a long, long time.

MS. BARTIROMO: Look, you said a lot of things there.


MS. BARTIROMO: And I want to ask you about your free trade policy --

SEN. MCCAIN: Sure. Sure.

MS. BARTIROMO: -- because some people feel, by the way, displaced by that. But let me back up here. You say you want to keep taxes low. You don't want to raise taxes. You want to cut taxes. Here we are in the middle of a war which you say is important to our national security. Why not ask people to pay for it?

SEN. MCCAIN: Well, first of all, Senator Obama, as you know, wants to increase capital gains taxes. There's a hundred million people who have some kind of investment.

This war, we're succeeding. We would be able to reduce the cost. The Iraqis will pick up a greater amount of the cost. We -- as we succeed -- and we are winning. And the strategy that Senator Obama said was doomed to failure and could not work and still does not acknowledge that it's working is succeeding. We are winning in Iraq. That will bring those expenses and costs down over time.

But I guarantee you this: If we did what Senator Obama wanted to do -- and that's a date for withdrawal -- there would have been chaos, genocide and would have been a lot more expensive in more than dollars.

MS. BARTIROMO: Given the tenuous situation we find ourselves in, when it comes to oil, what is your energy policy? Give us specific incentives that are going to get people to conserve, get automakers to make the products that people want; fuel efficiency.

SEN. MCCAIN: Specific incentives is investment in pure research and development. If we can get that battery that takes a car, an automobile 200 miles before you have to plug it in, and the only for a couple hours, Americans would go for them.

We need to have, make those research and development tax credits permanent, not hold up the business community every year or two for more campaign contributions.

We have to accelerate the whole process of building nuclear power plants. It takes five years in Europe to build a nuclear power plant. It takes 10 years in the United States of America at minimum. And we haven't built one in, I think, 25 years or so. Whatever it's been, it's way too long.

Clean coal technology is vital. We've got the technology. It's too expensive. We've got to improve upon that. We have to develop wind, tide, solar, all of those and unleash the innovative spirit and entrepreneurship of America.

We can become independent on foreign oil. We can do that and we can also attack climate change. And we can also stop sending 5 or $600 billion a year to countries that don't like us very much. And some of that money ends up in the hands of terrorist organizations. Can't do it. We've got to --

MS. BARTIROMO: But where does the money come from, Senator? I mean, right now we've got a $500 billion deficit that we're looking at. Even if you eliminate earmarking, that's only 60 billion. Where are you going to get the revenue to do this?

SEN. MCCAIN: Well, first of all, the size of the federal budget has grown by some 40 percent in the last eight years. Reduce spending. Stop the growth of spending.

In the 1980s, we break the growth of spending. And therefore we embarked, along with tax reductions, on one of the biggest eras of prosperity, one of the best periods of economic prosperity in the -- (audio break). We've got to make tough decisions.

And in all due respect, when you say it's, quote, "only" $60 billion, $60 billion is a great deal of money particularly when every time one of those pork-barrel projects becomes part of the budget, it's a permanent part of the budget.

Senator Obama has been involved in tens of millions of dollars of pork-barrel projects.

I've never asked for one nor received one. So we've got to send a message that we're going to stop the out-of-control spending, we're going to scrub every agency of government, and we're going to make them justify their existence. And if they can't, they're going to go out of existence.

MS. BARTIROMO: Lower the spending. Name three programs you would cut right now.

SEN. MCCAIN: Well, I would -- I voted against the farm bill, ethanol subsidies. Start -- start with that. Funding for a whole bunch of different Defense acquisitions, which is -- which is very large. (Chuckles.)

MS. BARTIROMO: Senator McCain, the other day a senior Israeli official indicated that if Iran built nuclear weapons, Israel would attack it. Of course, that sent oil prices soaring. What would you do in that scenario?

SEN. MCCAIN: I don't think we can afford to have Iran with nuclear weapons. I say that at the end of the day. But I've already had conversations with Sarkozy, with Gordon Brown, with others. We could join together -- and there's movement in this direction. With all of our, quote, "democracies," a league of democracies, impose meaningful trade, economic, diplomatic and every other kind of sanction on what is a very weak economy. The Iranian economy's very weak because they've got a lousy government -- (audio break) -- would certainly pursue those efforts vigorously, and I think we could have some -- some success. But of course the Iranian effort and continued progress, according to the IAEA, towards the acquisition of nuclear weapons is very disturbing.

And finally, I would not sit down without any precondition. I'd have lots of communications with the Iranians, as we do now. But to sit down across the table without preconditions with Ahmadinejad, as Senator Obama wants to do, I think would be a mistake of enormous proportions.

MS. BARTIROMO: And as we see soaring prices here on oil, we're also facing inflation on a lot of other areas --


MS. BARTIROMO: -- food, other commodities, in addition to this economic slowdown. What's a bigger risk to the American people today, the slowdown or inflation?

SEN. MCCAIN: I think they're both inextricable. I think we need to slow down -- (audio break) -- and the world price of oil goes up and the dollar weakens, and we continue to spend American taxpayers' dollars in the most irresponsible and outrageous fashion, then you're going to have this incredible cycle.

I'm very worried about the strength of the dollar. We all know when the dollar weakens, the price of oil goes up.

And by the way, could I mention one other thing?

The gas tax holiday that I proposed and everybody said, wow, it's the end of western civilization as we know it --

MS. BARTIROMO: No, Barack Obama said it's not a good idea.

SEN. MCCAIN: Well, look, I've run into people not that long ago that own trucks -- an individual that owns two or three trucks. He says, "I'd love to have a break. I could -- love to have a break from this 24 1/2 cent tax I pay for every gallon of diesel. I'm about to go out of business." Why not help the lowest income Americans who drive the furthest to work and also drive the largest gas consumption automobiles because the older automobiles?

I think you're out of touch with America, I think, when you don't support such a thing. And it was a just a break. It was just a break. They need it right now.

MS. BARTIROMO: You mentioned trade deals. Obviously, Senator Obama wants to redo NAFTA, as you said it, and look at other trade deals. What do you tell people who feel displaced by what's been going on with the rest of the world? They've lost their job to India, to China, to other places around the world.

SEN. MCCAIN: Sure. First of all, I tell them that unilaterally renegotiating any agreement with another sovereign nation is a serious threat to the entire fabric of international relations, particularly with China. Thirty-three percent of our exports, as I understand, or certainly of our foreign trade -- foreign trade, I think, a huge amount is obviously Canada and Mexico.

I tell them that I believe that it's good for America and I believe American workers are the most productive. But I also tell them that I'm going to have a program for education and retraining of workers that works. Right now our unemployment insurance and our displaced worker programs were designed for the '50s. They're absolute failures. We've got to go to the community colleges, have them design and implement education and training programs that give these workers a second chance.

And there are new technologies out there. There are green technologies. I believe in the fundamental strength of our economy, but I also know full well how tough these times are. I hear from Americans every day that are hurting.

MS. BARTIROMO: Senator Obama has clearly triggered a movement with young people. How are you going to get young people to vote for you?

SEN. MCCAIN: Well, we're doing pretty well. We've got to do a lot more appearances on "Saturday Night Live" and Jon Stewart and MTV and all of those venues that -- a lot of young Americans don't get up and watch the Sunday morning talk shows.

But most importantly, I've got to give them a vision for the future of a -- of reform, of prosperity and peace. They're the ones that are going to be in harm's way if we mishandle the situation in the Middle East.

They're the ones that need -- have to have an education that is both affordable and high quality. I've got to -- I've got to convince them. And I've got a lot of work to do, don't get me wrong. We've got a lot of work to do. But I will hand to them a generation -- to this next generation a world that is safer and more prosperous, something we've done for every generation throughout our history.

MS. BARTIROMO: Well, we have a lot of work to do around the world, as well, getting diplomacy back on track and confidence back in the United Sates. How do you do that? Tell me how you increase confidence in the U.S. and create friendships that were lost over the last few years?

SEN. MCCAIN: Well, one of the first things that I would do is declare that the United States of America will never torture another person who is in the custody of the United States of America. That has hurt our image enormously. I would also say that I would -- going to close Guantanamo Bay.

I would also say that I will work together with our allies, our traditional allies, and we will come up with hemispheric trade agreements. I'd love to see a U.S.-EU free trade agreement that we will -- sharing common values, common principles, we will work together as a community of nations. And we have to do it, given the threats that we face.

I have personal relationships with these leaders all around the world. I know them. I've been involved in these issues for a long, long time.

MS. BARTIROMO: Senator McCain, nice to have you on the program.

SEN. MCCAIN: Thank you, Maria.


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