....

SCHIEFFER:

Good evening. And welcome to the third and last presidential debate of 2008, sponsored by the Commission on Presidential Debates. I'm Bob Schieffer of CBS News.

The rules tonight are simple. The subject is domestic policy. I will divide the next hour-and-a-half into nine-minute segments.

I will ask a question at the beginning of each segment. Each candidate will then have two minutes to respond, and then we'll have a discussion.

I'll encourage them to ask follow-up questions of each other. If they do not, I will.

The audience behind me has promised to be quiet, except at this moment, when we welcome Barack Obama and John McCain.

(APPLAUSE)

Gentlemen, welcome.

By now, we've heard all the talking points, so let's try to tell the people tonight some things that they -- they haven't heard. Let's get to it.

(QUESTION #1)

Another very bad day on Wall Street, as both of you know. Both of you proposed new plans this week to address the economic crisis.

Senator McCain, you proposed a $52 billion plan that includes new tax cuts on capital gains, tax breaks for seniors, write-offs for stock losses, among other things.

Senator Obama, you proposed $60 billion in tax cuts for middle- income and lower-income people, more tax breaks to create jobs, new spending for public works projects to create jobs.

I will ask both of you: Why is your plan better than his?

Senator McCain, you go first.

SEN. MCCAIN: Well, let me -- let me say, Bob, thank you.

And thanks to Hofstra.

And by the way, our beloved Nancy Reagan is in the hospital

tonight, so our thoughts and prayers are going with you.

It's good to see you again, Senator Obama.

Americans are hurting right now, and they're angry. They're

hurting and they're angry.

They're innocent victims of greed and excess on Wall Street and

as well as Washington, D.C. And they're angry and they have every

reason to be angry. And they want this country to go in a new

direction. And there are elements of my proposal that you just

outlined, which I won't repeat. But we also have to have a short-term

fix, in my view, and long-term fixes.

Let me just talk to you about one of the short-term fixes. The

catalyst for this housing crisis was the Fannie and Freddie Mae that

caused the subprime lending situation that now cause the housing

market in America to collapse.

I am convinced that until we reverse this continued decline in

homeownership and put a floor under it, and so that people have not

only the hope and belief they can stay in their homes and realize the

American dream, but that value will come up.

Now, we have allocated $750 billion. Let's take 300 of that

billion and go in and buy those home-loan mortgages and negotiate with

those people in their homes, 11 million homes or more, so that they

can afford to pay the mortgage, stay in their home.

Now, I know the criticism of this. Well, what about the citizen that

stayed in their homes, that -- that -- that paid their mortgage

payments? It doesn't help that person in their home if the -- if the

next door neighbor's house is abandoned.

And so we've got to reverse this. We ought to put the homeowners

first. And I am disappointed that Secretary Paulson and others have

not made that their first priority.

MR. SCHIEFFER: All right.

Senator Obama.

SEN. OBAMA: Well, first of all, I want to thank Hofstra

University and the people of New York for hosting this tonight. And

it's wonderful to join Senator McCain again. And thank you, Bob.

I think everybody understands at this point that we are

experiencing the worst financial crisis since the Great Depression.

And the financial rescue plan that Senator McCain and I supported is a

important first step and I pushed for some core principles: making

sure the taxpayers can get their money back if they're putting money

up, making sure that CEOs are not enriching themselves through this

process.

And I think that it's going to take some time to work itself out.

But what we haven't yet seen is a rescue package for the middle

class, because the fundamentals of the economy were weak even before

this latest crisis. So I've proposed four specific things that I

think can help.

Number one, let's focus on jobs. I want to end the tax breaks

for companies that are shipping jobs overseas and provide a tax credit

for every company that's creating a job right here in America.

Number two, let's help families right away by providing them a

tax cut, a middle-class tax cut for people making less than $200,000.

And let's allow them to access their IRA accounts without penalty if

they're experiencing a crisis.

Now, Senator McCain and I agree with your idea that we've got to

help homeowners. That's why we included in the financial package a

proposal to get homeowners in a position where they can renegotiate

their mortgages. I disagree with Senator McCain in how to do it

because the way Senator McCain has designed his plan, it could be a

giveaway to banks if we're buying full-price for mortgages that now

are worth a lot less, and we don't want to waste taxpayer money.

And we've got to get the financial package working much quicker than

it's been working.

The last point I want to make, though -- we've got some long-term

challenges in this economy that have to be dealt with. We've got to

fix our energy policy that's giving our wealth away. We've got to fix

our health care system, and we've got to invest in our education

system for every young person to be able to learn.

MR. SCHIEFFER: All right.

SEN. MCCAIN: You know --

MR. SCHIEFFER: Would you like to ask him a question?

SEN. MCCAIN: No. I would like to mention that a couple of days

ago Senator Obama was out in Ohio, and he had an encounter with a guy

who's a plumber. Name is Joe Wurzelburger (sp). Joe wants to buy the

business that he's been in for all these years. Worked 10, 12 hours a

day. And he wanted to buy the business, but he looked at your tax

plan and he saw that he was going to pay much higher taxes. You were

going to put him in a higher tax bracket, which was going to increase

his taxes, which was going to cause him not to be able to employ

people, which -- Joe was trying to realize the American dream.

Now, Senator Obama talks about the very, very rich. Joe, I want

to tell you, I'll not only help that -- you buy that business that you

worked your whole life for and be able -- and I'll keep your taxes low

and I'll provide available and affordable health care for you and your

employees. And I will not have, I will not stand for, a tax increase

on small-business income.

50 percent of small-business income tax is -- taxes are paid by

small businesses. That's 16 million jobs in America. And what you

want to do to Joe the plumber and millions more like him is have their

taxes increased and not be able to realize the American dream of

owning their own business.

MR. SCHIEFFER: Is that what you want to do?

(Audio break.)

SEN. OBAMA: He's been watching some ads of Senator McCain's.

Let me tell you what I'm actually going to do.

I think tax policy is a major difference between Senator McCain

and myself. And we both want to cut taxes. The difference is, who we

want to cut taxes for.

Now, Senator McCain -- the centerpiece of his economic proposal

is to provide $200 billion in additional tax breaks to some of the

wealthiest corporations in America.

ExxonMobil and other oil companies, for example, would get an

additional $4 billion in tax breaks.

What I have said is I want to provide a tax cut for 95 percent of

working Americans -- 95 percent. If you make more -- if you make less

than a quarter-million dollars a year, then you will not see your

income tax go up, your capital gains tax go up, your payroll tax --

not one dime. And 95 percent of working families -- 95 percent of you

out there -- will get a tax cut. In fact, independent studies have

looked at our respective plans and have concluded that I provide three

times the amount of tax relief to middle-class families than Senator

McCain does.

Now, the conversation I had with Joe the plumber, what I

essentially said to him was, five years ago, when you were in the

position to buy your business, you needed a tax cut then. And what I

want to do is to make sure that the plumber, the nurse, the

firefighter, the teacher, the young entrepreneur who doesn't yet have

money, I want to give them a tax break now. And that requires us to

make some important choices.

Last point I'll make about small businesses -- not only do 98

percent of small businesses make less than $250,000, but I also want

to give them additional tax breaks because they are the drivers of the

economy. They produce the most jobs.

SEN. MCCAIN: You know what Senator Obama ended up his

conversation with Joe the plumber? "We need to spread the wealth

around." In other words, we're going to take Joe's money, give it to

Senator Obama and let him spread the wealth around. I want Joe the

plumber to spread that wealth around. You told him you -- (audio

break) -- to spread the wealth around.

The whole premise behind Senator Obama's plans are class warfare

-- let's spread the wealth around. I want small businesses -- and by

the way, small businesses that we're talking that would receive an

increase in their taxes, right now -- who -- why would you want to

increase anybody's taxes right now? Why would you want to do that --

anyone, anyone in America -- when we have such a tough time, when

these small-business people like Joe the plumber are going to create

jobs unless you take that money from him and spread the wealth around.

SEN. OBAMA: Okay, can I --

SEN. MCCAIN: I'm not going to -- I'm not going do that in my

administration.

SEN. OBAMA: If I can answer the question, number one, I want to

cut taxes for 95 percent of Americans. Now, it is true that my friend

and supporter Warren Buffett, for example, could afford to pay a

little more in taxes in order --

SEN. MCCAIN: We're talking about Joe the plumber. (Laughs.)

SEN. OBAMA: -- in order to give -- in order to give additional

tax cuts to Joe the plumber before he was at the point where he could

make $250,000. Then ExxonMobil, which made $12 billion -- record

profits -- over the last several quarters, they can afford to pay a

little more so that ordinary families who are hurting out there, they

-- they're trying to figure out how they're going to afford food, how

they're going to save for their kids' college education -- they need a

break.

So, look, nobody likes taxes. I would prefer that none of us had

to pay taxes, including myself. But ultimately we've got to pay for

the core investments that make this economy strong, and somebody's got

to do it.

SEN. MCCAIN: If nobody likes taxes, let's not raise anybody's

taxes, okay?

SEN. OBAMA: Well, I don't mind paying a little more.

SEN. MCCAIN: The fact is that businesses in America today are

paying the second-highest tax rate of anywhere in the world.

Our tax rates for business in America is 35 percent. Ireland, it's 11

percent. Where are companies going to go where they can create jobs

and where they can do best in business? We need to cut the the

business tax rate in America. We need to encourage business now. Of

all times in America, we need to cut people's taxes. We need to

encourage business, create jobs, not spread the wealth around.

(QUESTION #2)

MR. SCHIEFFER: All right. Let -- let's go to another topic.

It's related, so if you have other things you want to say, you can get

back to that.

This question goes to you first, Senator Obama. We found out

yesterday that this year's deficit will reach an astounding record

high of $455 billion. Some experts say it could go to a trillion

dollars next year. Both of you have said you want to reduce the

deficit, but the nonpartisan Committee for a Responsible Federal

Budget ran the numbers on both of your proposals, and they say the

cost of your proposals, even with the savings you claim can be made,

each will add more than $200 billion to the deficit.

Aren't you both ignoring reality? Won't some of the programs

you're proposing have to be trimmed, postponed, even eliminated? Give

us some specifics on what you're going to cut back.

Senator Obama.

SEN. OBAMA: Well, first of all, I think, it's important for the

American public to understand that the $750 billion rescue package, if

it's structured properly and, as president, I will make sure it's

structured properly, means that ultimately taxpayers get their money

back. And that's important to understand. But there is no doubt that

we've been living beyond our means. And we're going to have to make

some adjustments.

Now, what I've done throughout this campaign is to propose a net

spending cut. I haven't made a promise about --

MR. SCHIEFFER: (Off mike) -- cut some of these programs, sir.

SEN. OBAMA: Absolutely. So let me get to that.

What I want to emphasize though is that I have been a strong

proponent of pay-as-you-go. Every dollar that I've proposed, I've

proposed an additional cut, so that it matches. And some of the cuts,

just to give you an example, we spend $15 billion a year on subsidies

to insurance companies.

It doesn't -- under the Medicare plan, it doesn't help seniors get any

better. It's not improving our health care system. It's just a

giveaway.

We need to eliminate a whole host of programs that don't work,

and I want to go through the federal budget line by line, page by

page. Programs that don't work, we should cut. Programs that we

need, we should make them work better.

Now, what is true is that Senator McCain and I have a difference

in terms of the need to invest in America, in the American people. I

mentioned health care earlier. If we make investments now so that

people have coverage, that we are preventing diseases, that will save

on Medicare and Medicaid in the future. If we invest in a serious

energy policy, that will save in the amount of money we're borrowing

from China to send to Saudi Arabia. If we invest now in our young

people and their ability to go to college, that will allow them to

drive this economy into the 21st century.

But what is absolutely true is that once we get through this

economic crisis and some of the specific proposals to get us out of

this slump, that we're not going to be able to go back our profligate

ways and we're going to have to embrace a culture and an ethic of

responsibility, all of us, corporations, the federal government and

individuals out there who may be living beyond their means.

MR. SCHIEFFER: Time's up.

Senator?

SEN. MCCAIN: Well, thank you, Bob. I just want to get back to

this homeownership. During the Depression era, we had a thing called

the Homeownership Loan Corporation. And they went out and bought up

these mortgages, and people were able to stay in their homes. And

eventually the values of those homes went up and they actually made

money. And by the way, this was a proposal made by Senator Clinton

not too long ago.

So obviously if we can start increasing home values, then there

will be creation of wealth.

MR. SCHIEFFER: But what --

SEN. MCCAIN: But --

MR. SCHIEFFER: The question was, what are you going to cut?

SEN. MCCAIN: Okay. All right. Energy -- on -- well, first --

second of all, energy-independent -- we have to nuclear power. We

have to stop sending $700 billion a year to countries that don't like

us very much. It's wind, tide, solar, natural gas, nuclear, offshore

drilling, which Senator Obama has opposed. And the point is that we

become energy-independent, and we will create millions of jobs,

millions of jobs in America.

Okay. What -- what would I cut? I would have, first of all, an

across-the-board spending freeze, okay?

That -- some people say that's a hatchet. That's a hatchet, and then

I would get out a scalpel, okay, because we've got -- we have presided

over the largest increase -- we got to have new direction for this

country. We have presided over the largest increase in government

since the Great Society. Government spending has gone completely out

of control. Ten trillion dollar debt we're giving to our kids; a half

a trillion dollars we owe China.

I know how to save billions of dollars in defense spending. I

know how to eliminate programs. I have fought against --

MR. SCHIEFFER: Which ones?

SEN. MCCAIN: Well, one of them would be the marketing assistance

program.

Another one would be a -- a number of subsidies for ethanol. I

opposed subsidies for ethanol because I thought it distorted the

market and created inflation. Senator Obama supported those

subsidies.

I would eliminate the tariff on imported sugarcane-based ethanol

from Brazil.

I know how to save billions. I saved the taxpayer $6.8 billion

by fighting a deal for a couple of years, as you might recall, that

was a sweetheart deal between an aircraft manufacturer, DOD, and

people ended up in jail.

But I would fight for a line-item veto, and I would certainly

veto every earmark, pork-barrel bill. Senator Obama has asked for

nearly $1 billion in pork-barrel earmark projects, including $3

million for an overhead projector in a planetarium in his hometown.

That's not the way we cut --

MR. SCHIEFFER: Time's --

SEN. MCCAIN: We'll cut out all the pork.

MR. SCHIEFFER: Time's up.

SEN. OBAMA: Well, look, I -- I think that we do have a

disagreement about a(n) across-the-board spending freeze. It -- it

sounds good. It's proposed periodically. It doesn't happen. And in

fact, an across-the-board spending freeze is a hatchet, and we do need

a scalpel, because there are some programs that don't work at all.

There are some programs that are underfunded. And I want to make sure

that we are focused on those programs that work.

Now, Senator McCain talks a lot about earmarks. That's one of

the centerpieces of his campaign. Earmarks account for one-half of 1

percent of the total federal budget. There's no doubt that the system

needs reform and there are a lot of screwy things that we end up

spending money on, and they need to be eliminated. But it's not going

to solve the problem.

Now, the last thing I think we have to focus on is a little bit

of history, just so we understand what we're doing going forward.

When President Bush came into office, we had a budget surplus.

And the national debt was a little over $5 trillion. It has doubled

over the last eight years. And we are now looking at a deficit of

well over $0.5 trillion.

So one of the things that, I think, we have to recognize is,

pursuing the same kinds of policies that we've pursued, over the last

eight years, is not going to bring down the deficit. And frankly

Senator McCain voted for four out of five of President Bush's budgets.

We've got to take this in a new direction. That's what I'd

propose as president.

(QUESTION #3)

MR. SCHIEFFER: Do either of you think you can balance the budget

in four years?

You have said previously you thought you could, Senator McCain.

SEN. MCCAIN: Sure, I do. And let me --

MR. SCHIEFFER: You'd still do that.

SEN. MCCAIN: Yeah.

Senator Obama, I am not President Bush. If you wanted to run

against President Bush, you should have run four years ago.

I'm going to give a new direction to this economy in this

country. Senator Obama talks about voting for budgets. He voted

twice for a budget resolution that increases the taxes on individuals

making $42,000 a year.

Of course, we can take a hatchet and a scalpel to this budget.

It's completely out of control.

The mayor of New York, Mayor Bloomberg, just posed a(n) across-

the-board spending freeze on New York City. They're doing it all over

America because they have to, because they have to balance their

budgets. I will balance our budgets and I will get them in --

MR. SCHIEFFER: Four years --

SEN. MCCAIN: And I will reduce the -- I can -- we can do it with

this kind of job creation of energy independence.

Now, look, Americans are hurting tonight and they're angry. And

I understand that. And they want a new direction. I can bring them

in that direction by eliminating spending.

Senator Obama talks about the budgets I voted for. He voted for

the last two budgets that had $24 billion more in spending than the --

than the budget that the Bush administration proposed. He voted for

the energy bill that was full of goodies for the oil companies that I

opposed.

So the fact is let's look at our record, Senator Obama. Let's

look at -- it's graded by the National Taxpayers Union and the

Citizens Against Government Waste and the other watchdog

organizations. I have fought against spending. I have fought against

special interests. I have fought for reform. You have to tell me one

time when you have stood up with the leaders of your party on one

single major issue.

MR. SCHIEFFER: Barack.

SEN. OBAMA: Well, the -- there was a lot of stuff that was put

out there, so let me try to address it.

First of all, in terms of standing up to the leaders of my party,

the first major bill that I voted on in the Senate was in support of

tort reform, which wasn't very popular with trial lawyers, a major

constituency in the Democratic Party. I support --

SEN. MCCAIN: An overwhelming vote.

SEN. OBAMA: I support charter schools and pay-for-performance

for teachers. Doesn't make me popular with the teachers' union.

I support clean-coal technology. Doesn't make me popular with

environmentalists.

So I've got a history of reaching across the aisle.

Now, with respect to a couple of things Senator McCain said, the

notion that I voted for a tax increase for people making $42,000 a

year has been disputed by everybody who's looked at this claim that

Senator McCain keeps on making. Even Fox News disputes it, and -- and

-- (laughter) -- and -- and that doesn't happen very often when it

comes to accusations about me.

So -- (chuckles) -- so the -- the -- the fact of the matter is,

is that if I occasionally mistaken your policies for George Bush's

policies, it's because on the core economic issues that matter to the

American people -- on tax policy, on energy policy, on spending

priorities -- you have been a vigorous supporter of President Bush.

Now you've shown independence, commendable independence, on some

key issues like torture, for example, and -- and I give you enormous

credit for that. But when it comes to economic policies, essentially

what you're proposing is eight more years of the same thing. And it

hasn't worked, and I think the American people understand it hasn't

worked. We need to move in a new direction.

MR. SCHIEFFER: All right.

SEN. MCCAIN: Let me -- let me just say, Bob --

MR. SCHIEFFER: Okay. About 30 seconds.

SEN. MCCAIN: Okay. But it's -- it's very clear that I have

disagreed with the Bush administration. I have disagreed with leaders

of my own party. I got the scars to prove it. Whether it be bringing

climate change to the floor of the Senate for the first time; whether

it be opposition to spending and earmarks; whether it be the issue of

torture; whether it be the conduct of the war in Iraq, which I

vigorously opposed; whether it be on fighting the pharmaceutical

companies on Medicare -- on prescription drugs, importation; whether

it be fighting for an HMO patients bill of rights; whether it be the

establishment of the 9/11 commission, I have a long record of reform

and fighting through on the floor of the United States Senate.

MR. SCHIEFFER: All right.

SEN. MCCAIN: Senator Obama, your -- your -- your argument for

standing up to the leaders of your party isn't very convincing.

(QUESTION #4)

MR. SCHIEFFER: All right.

We're going to move to another question. And the topic is

leadership in this campaign. Both of you pledged to take the high

road in this campaign. Yet it has turned very nasty.

Senator Obama, your campaign has used words like erratic, out of

touch, lie, angry, losing his bearings -- (audio break).

Senator McCain, your commercials have included words like

disrespectful, dangerous, dishonorable, he lied. Your running mate

said he palled around with terrorists.

Are each of you tonight willing to sit at this table and say, to

each other's face, what your campaigns and the people in your

campaigns have said about each other?

And Senator McCain, you're first.

SEN. MCCAIN: Well, this has been a tough campaign. It's been a

very tough campaign.

And I know from my experience in many campaigns that if Senator Obama

had asked -- responded to my urgent request to sit down and do town-

hall meetings and come before the American people, we could have done

at least 10 of them by now. When Senator Obama was first asked, he

said anyplace, anytime -- the way Barry Goldwater and Jack Kennedy

agreed to do before the intervention of the tragedy at Dallas.

So I think the tone of this campaign could have been very

different. And the fact is, it's gotten pretty tough, and I regret

some of the negative aspects of both campaigns. But the fact is that

it has taken many turns which I think are unacceptable. One of them

happened just the other day, when a man I admire and respect -- I've

written about him -- Congressman John Lewis, an American hero -- made

allegations that Sarah Palin and I were somehow associated with the

worst chapter in American history: segregation, deaths of children in

church bombings, George Wallace. That -- that, to me, was so hurtful.

And Senator Obama, you didn't repudiate those remarks. Every time

there's been an out-of-bounds remark made by a Republican, no matter

where they are, I have repudiated them. I hope that Senator Obama

will repudiate those remarks that were made by Congressman John Lewis.

They're very unfair and totally inappropriate.

So I want to tell you, we will run a truthful campaign. This is

a tough campaign. And it's a matter of fact that Senator Obama has

spent more money on negative ads than any political campaign in

history, and I can prove it.

And Senator Obama, when he said -- and he signed a piece of paper

that said he would take public financing for his campaign if I did.

That was back when he was a long-shot candidate. You didn't keep your

word. And when you looked into the camera in a debate with Senator

Clinton and said, "I will sit down and negotiate with John McCain

about public financing before I make a decision," you didn't tell the

American people the truth, because you didn't. And that's -- that's

-- that's an unfortunate part. Now we have the highest spending by

Senator Obama's campaign than any time --

MR. SCHIEFFER: Time's up.

SEN. MCCAIN: -- since Watergate.

SEN. OBAMA: All right.

Well, look, you know, I think that we expect presidential

campaigns to be tough. I think that if you look at the record and the

impressions of the American people -- Bob, your network just did a

poll showing that two-thirds of the American people think that Senator

McCain's running a negative campaign versus one-third of mine. And

100 percent, John, of your ads -- 100 percent of them -- have been

negative.

SEN. MCCAIN: That's not true.

SEN. OBAMA: A hundred -- it -- it absolutely is true. And --

and -- now, I think the American people are less interested in our

hurt feelings during the course of the campaign than addressing the

issues that matter to them so deeply. And there is nothing wrong with

us having a vigorous debate, like we're having tonight, about health

care, about energy policy, about tax policy. That's the stuff that

campaigns should be made of.

The notion, though, that because we're not doing town-hall

meetings, that justifies some of the ads that have been going up not

just from your own campaign directly, John, but 527s and other

organizations that make some pretty tough accusations -- well, I don't

mind being attacked for the next three weeks.

What the American people can't afford though is four more years of

failed economic policies. And what they deserve over the next four

weeks is that we talk about what's most pressing to them -- the

economic crisis.

Senator McCain's own campaign said publicly last week that if we

keep on talking about the economic crisis, we lose, so we need to

change the subject. And I would love to see the next three weeks

devoted to talking about the economy, devoted to talking about health

care, devoted to talking about energy and figuring out how the

American people can send their kids to college.

And that is something that I would welcome. But it -- it

requires, I think, a recognition that politics as usual, as has been

practiced over the last several years, is not solving the big problems

here in America.

SEN. MCCAIN: Well, if you'll turn on the television, as I -- I

watched the Arizona Cardinals defeat the Dallas Cowboys on Sunday.

SEN. OBAMA: Congratulations.

SEN. MCCAIN: Every other ad -- (laughter) -- every other ad was

an attack ad on my health care plan.

And any objective observer has said it's not true.

You're running ads right now that say that I oppose federal

funding for stem cell research. I don't. You're running ads that --

that misportray completely my position on immigration.

So the fact is that Senator Obama is spending unprecedented --

unprecedented in the history of American politics, going back to the

beginning -- amounts of money in negative attack ads on me.

And of course I've been talking about the economy. Of course

I've talked to people like Joe the plumber and tell him that I'm not

going to spread his wealth around. I'm going to let him keep his

wealth. And of course we're talking about a positive plan of action

to restore this economy and restore jobs in America. That's what my

campaign is all about, and that's what it'll continue to be all about.

But again, I did not hear a repudiation of Congressman Lewis's

remarks.

SEN. OBAMA: Well, I mean, look, if we want to talk about

Congressman Lewis, who is an American hero, he -- unprompted by my

campaign, without my campaign's awareness -- made a statement that he

was troubled with what he was hearing at some of the rallies that your

running mate was holding, in which all the public reports indicated

were shouting, when my name came up, things like "terrorist" and "Kill

him," and that your running mate didn't mention -- didn't stop, didn't

say, "Hold on a second. That's kind of out of line."

And I think Congressman Lewis's point was that we have to be

careful about how we deal with our supporters.

SEN. MCCAIN: (Laughs.) You've got to read what he said --

SEN. OBAMA: Now, John -- John -- let --

SEN. MCCAIN: You've got to read what he said.

SEN. OBAMA: Let me -- let me -- let me complete --

MR. SCHIEFFER: Go ahead.

SEN. OBAMA: -- my response. I do think that he inappropriately

drew a comparison between what was happening there and what had

happened during the civil rights movement. And we immediately put out

a statement saying that we don't think that comparison is appropriate.

And in fact, afterwards, Congressman Lewis put out a (similar ?)

statement saying that he had probably gone over the line.

The important point here is, though, the American people have

become so cynical about our politics because all they see is a tit for

tat and back and forth.

And what they want is the ability to just focus on some really big

challenges that we face right now. And that's what I have been trying

to focus on this entire campaign.

SEN. MCCAIN: I cannot --

SEN. OBAMA: We can have serious differences about our health

care policy, for example, John, because --

SEN. MCCAIN: Yeah.

SEN. OBAMA: -- we do have a difference on health care policy --

SEN. MCCAIN: We do, and I hope we talk about it.

SEN. OBAMA: -- and we'll spend some time talking about it this

evening.

SEN. MCCAIN: All right, sure.

SEN. OBAMA: But when people suggest that I pal around with

terrorists, then we're not talking about issues --

SEN. MCCAIN: Well --

SEN. OBAMA: -- what we're talking about are --

SEN. MCCAIN: Well, let -- let me just say, I -- I --

MR. SCHIEFFER: Does he pal around with terrorists?

SEN. MCCAIN: Let me just say categorically I'm proud of the

people that come to our rallies. Whenever you get a large rally of

10(,000), 15(,000), 20,000 people, you're going to have some fringe

peoples. You know -- you know that. And -- and I've -- and we've

always said that that's not appropriate. But to somehow say that that

group of young women who said "Military Wives for McCain" are somehow

saying anything derogatory about you but are anything -- and those

veterans that wear those hats that say World War II, Vietnam, Korea,

Iraq -- I'm not going to stand for people saying that the people come

-- that come to my rallies are anything but the most dedicated,

patriotic men and women that -- that are in this nation, and -- and

they're great citizens.

And I'm not going to stand for somebody saying that because

someone yelled something at a rally -- there's a lot of things that

have been yelled at your rallies, Senator Obama, that I'm not happy

about either, in fact, some T-shirts that are very unacceptable.

SEN. OBAMA: (Off mike.)

SEN. MCCAIN: So the point is -- the point is that I have

repudiated every time someone has been out of line, whether they've

been part of my campaign or not. And I will continue to do that. But

the -- but the fact is that we need to absolutely not stand for the

kind of things that have been going on. I haven't.

SEN. OBAMA: Well, look, Bob, as I said --

MR. SCHIEFFER: I mean, do you take issue with that?

SEN. OBAMA: You know, here's what I would say. I mean, we can

have a debate back and forth about the merits of each other's

campaigns. I suspect we won't agree here tonight.

What I think is most important is that we recognize that to solve

the key problems that we're facing, if we're going to solve two wars,

the worst financial crisis since the Great Depression, if we can -- if

we're going to focus on lifting wages that have declined, over the

last eight years, and create jobs here in America, then Democrats,

independents and Republicans, we're going to have to be able to work

together.

And what is important is making sure that we disagree without being

disagreeable. And it means that we can have tough, vigorous debates

around issues. What we can't do, I think, is try to characterize each

other as bad people, and that --

SEN. MCCAIN: Well --

SEN. OBAMA: -- has been a culture in Washington that -- that's

been taking place for too long. And I think that on -- I think --

SEN. MCCAIN: Well, Bob, you asked me a direct question about --

MR. SCHIEFFER: Short question.

SEN. MCCAIN: Yeah, real quick.

Mr. Ayers, I don't care about an old, washed-up terrorist. But

as Senator Clinton said in her debates with you, we need to know the

full extent of that relationship. We need to know the full extent of

Senator Obama's relationship with ACORN, who is now on the verge of

maybe perpetrating one of the greatest frauds in voter history in this

country, maybe destroying the fabric of democracy -- same front outfit

-- organization that your campaign gave $832,000 for for, quote,

"lighting and site selection." So all of these things need to be

examined --

MR. SCHIEFFER: All right.

SEN. MCCAIN: -- of course.

MR. SCHIEFFER: All right. I'm going to let you respond, but

we'll extend this just for a moment.

SEN. OBAMA: I think it's going to be -- it's going to be

important to just -- I'll respond to these two particular allegations

that Senator McCain's made that have gotten a lot of attention. In

fact Mr. Ayers has become the centerpiece of Senator McCain's campaign

over the last two or three weeks. This has been their primary focus.

So let's get the record straight.

Bill Ayers is a professor of education in Chicago. Forty years

ago, when I was eight years old, he engaged in despicable acts with a

radical domestic group. I have roundly condemned those acts.

Ten years ago, he served and I served on a -- (brief audio break)

-- board that was funded by one of Ronald Reagan's former ambassadors

and close friends, Mr. Annenberg. Other members on that board were

the presidents of the University of Illinois; the president of

Northwestern University, who happens to be a Republican; the president

of the Chicago Tribune, a Republican-leaning newspaper.

Mr. Ayers is not involved in my campaign. He has never been

involved in this campaign. And he will not advise me in the White

House. So that's Mr. Ayers.

Now with respect to ACORN, ACORN is a community organization.

Apparently what they have done is they were paying people to go out

and register folks.

And apparently some of the people who were out there didn't really

register people, they just filled out a bunch of names. Had nothing

to do with us. We were not involved. The only involvement I've had

with ACORN was I represented them alongside the U.S. Justice

Department in making Illinois implement a motor voter law that helped

people get register (sic) at DMVs.

Now, the reason I think that it's important to just get these

facts out is because the allegation that Senator McCain's continually

made is that somehow my associations are troubling. Let me tell you

who I associate with. On economic policy, I associate with Warren

Buffett and former Fed Chairman Paul Volcker. If I'm interested in

figuring out my foreign policy, I associate myself with my running

mate, Joe Biden, or with Dick Lugar, the Republican ranking member on

the Senate Foreign Relations Committee or General Jim Jones, the

former supreme allied commander of NATO. Those are the people,

Democrats and Republicans, who have shaped my ideas and who will be

surrounding me in the White House.

And I think the fact that this has become such a(n) important

part of your campaign, Senator McCain, says more about your campaign

than it says about me.

SEN. MCCAIN: Well, again, while you were on the board of the

Woods Foundation, you and Mr. Ayers together, you sent $230,000 to

ACORN. So -- and you launched your political campaign in Mr. Ayers'

living room.

SEN. OBAMA: That's absolutely not true.

SEN. MCCAIN: And -- and the facts are facts, and records are

records.

SEN. OBAMA: That's not the facts.

SEN. MCCAIN: And it's not the fact -- it's not the fact that

Senator Obama choose to associate with a guy who in 2001 said that he

wished he'd have bombed more. And he had a long association with him.

It's the fact that all -- all of the details need to be known about

Senator Obama's relationship with them and with ACORN.

And the American people will make a judgment. And my campaign is

about getting this economy back on track, about creating jobs, about a

brighter future for America. And that's what my campaign is about.

And I'm not going to raise taxes the way Senator Obama wants to raise

taxes in a tough economy. And that's really what this -- this

campaign is going to be about.

(QUESTION #5)

MR. SCHIEFFER: All right. All right. Let's go to the next

topic. And you -- we may want to get back into some of this during

this next discussion.

I want to as both of you about the people that you're going to

bring into the government. And our best insight yet is who you picked

as your running mates. So I'll begin by asking both of you this

question.

And I'll ask you to answer first, Senator Obama. Why would the

country be better off if your running mate became president rather

than his running mate?

SEN. OBAMA: Well, Joe Biden, I think, is one of the finest

public servants that has served in this country.

It's not just that he has some of the best foreign policy credentials

of anybody -- and Democrats and Republicans alike I think acknowledge

his expertise there -- but it's also that his entire life he has never

forgotten where he came from: coming from Scranton, fighting on

behalf of working families, remembering what it's like to see his

father lose his job and -- and go through a downward spiral

economically.

And as a consequence, his consistent pattern throughout his

career is to fight for the little guy. That's what he's done when it

comes to economic policies that will help working families get a leg

up. That's what he's done when it comes to, for example, passing the

landmark 1994 crime bill, the Violence Against Womens (sic) Act. Joe

has always made sure that he is fighting on behalf of working

families.

And I think he shares my core values and my sense of where the

country needs to go because after eight years of failed policies, he

and I both agree that what we're going to have to do is to re-

prioritize, make sure that we're investing in the American people;

give tax cuts not to the wealthiest corporations, but give them to

small businesses and give them to individuals who are struggling right

now; make sure that we finally get serious about energy independence,

something that has been languishing in Washington for 30 years; and

make sure that our kids get a great education and can afford to go to

college.

So on the key issues that are of importance to American families,

Joe Biden's already -- always been on the right side, and I think he

will make an outstanding president if, heaven forbid, something

happened to me.

MR. SCHIEFFER: Senator.

SEN. MCCAIN: Well, Americans have gotten to know Sarah Palin.

They know that she's a role model to women and other -- and reformers

all over America. She's a reformer. She is -- she took on a governor

who was a member of her own party when she ran for governor. When she

was the head of their energy and natural resources board, she saw

corruption, she resigned. She's -- and -- and said this can't go on.

She's given money back to the taxpayers. She's cut the size of

government. She negotiated with the oil companies -- and faced them

down -- a $40 billion pipeline of natural gas that's going to relieve

the energy needs of the United -- of -- of what they call the "Lower

48." She's a reformer through and through, and it's time we had that

breash of freath -- breath of fresh air coming in to our nation's

capital and sweep out the old-boy network and the cronyism that's been

so much a part of it that I've fought against for all these years.

She'll be my partner. She understands reform.

And by the way, she also understands special-needs families. She

understands that autism is on the rise, that we got to find out what's

causing it and we've got to reach out to these families and help them

and give them the help they need as they raise these very special

needs children.

She understands that better than almost any American that I know. I'm

proud of her and that she has ignited our party and people all over

America that have never been involved in the political process. And I

can't tell you how proud I am of her and her family. Her husband's a

pretty tough guy, by the way, too.

MR. SCHIEFFER: Do you think she's qualified to be president?

SEN. OBAMA: You know, I think it's -- that's going to be up to

the American people. I think that obviously she's a capable -- (audio

break) -- has, I think, excited the -- a base in the Republican Party.

And I think it's very commendable -- the work she's done on behalf of

special needs. I agree with that, John.

I do want to just point out that autism, for example, or other

special needs will require some additional funding if we're going to

get serious in terms of research. That is something that every family

that advocates on behalf of disabled children talk about. And if we

have a across-the-board spending freeze, we're not going to be able to

do it. That's an example of, I think, the kind of -- the use of the

scalpel that we want to make sure that we're funding some of those

programs.

MR. SCHIEFFER: Do you think Senator Biden is qualified?

SEN. MCCAIN: Oh, I think that Joe Biden is qualified in many

respects, but I do point out that he's been wrong on many foreign

policy and national security issues, which is supposed to be his

strength. He voted against the first Gulf War.

He voted against it, and obviously we had to take Saddam Hussein out

of Kuwait or it would have threatened the Middle Eastern oil supply.

In Iraq, he had this cockamamie idea about dividing Iraq into

three countries. We're seeing Iraq united as Iraqis. It's tough,

hard -- but we're seeing them -- we're now about to have an agreement

for status of forces in Iraq coming up.

There are several issues in which, frankly, Joe Biden and I

openly and honestly disagreed on national security policy. And he's

been wrong on a number of the major ones.

But again, I want to come back to -- you know, notice, every

time, Senator Obama says, "We need to spend more. We need to spend

more. That's the answer." Why do we always have to spend more? Why

can't we have transparency, accountability, reform of these agencies

of government? Maybe that's why he's asked for 860 -- sought and

proposed $860 billion worth of new spending and -- and wants to raise

people's taxes in a time of incredible challenge and difficulty and

heartache for the American families.

(QUESTION #6)

MR. SCHIEFFER: Let's go to -- let's go to a new topic here.

We're running a little behind.

Let's talk about energy and climate control. Every president

since Nixon has said what both of you have said --

SEN. MCCAIN: Climate change.

MR. SCHIEFFER: Climate change, yes -- has said what both of you

have said, and that is we must reduce our dependence on foreign oil.

When Nixon said it, we imported from 17 to 34 percent of our foreign

oil. Now we're importing more than 60 percent.

Would each of you give us a number, a specific number of how much

you believe we can reduce our foreign oil imports during your first

term?

And I believe the first question goes to you, Senator McCain.

SEN. MCCAIN: I believe we can, for all intents and purposes,

eliminate our dependence on Middle Eastern oil and Venezuelan oil.

Canadian oil is fine.

By the way, when Senator Obama said he would unilaterally

renegotiate the North American Free Trade Agreement, the Canadians

said, yeah, and we'll sell our -- our oil to China. You don't tell

countries you're going to unilaterally renegotiate agreements with

them.

We can eliminate our dependence on foreign oil by building 45 new

nuclear power plants right away. We can store and we can reprocess.

Senator Obama will tell you, in the -- as the extreme

environmentalists do, it has to be safe.

Look, we've sailed Navy ships around the world for 60 years with

nuclear power plants on them. We can store and reprocess spent

nuclear fuel, Senator Obama, no problem.

So the point is, with nuclear power, with wind, tides, solar,

natural gas, with development of flex fuel, hybrid, clean coal

technology. Clean coal technology is a key in the heartland of

America that's hurting rather badly.

So I think we can easily, within 7, 8, 10 years, if we put our

minds to it, we can eliminate our dependence on the places in the

world that harm our national security, if we don't achieve our

independence from them.

(QUESTION #7)

MR. SCHIEFFER: All right.

Can we reduce our dependence on foreign oil, and by how much in

the first term, your -- in four years?

SEN. OBAMA: I -- I think that in 10 years we can reduce our

dependence so that we no longer have to import oil from the Middle

East or Venezuela. I think that's about a realistic time frame.

And -- and this is the most important issue that our future

economy is going to face. Obviously, we've got an immediate crisis

right now, but nothing's more important than us no longer borrowing

$700 billion or more from China and sending it to Saudi Arabia. It's

mortgaging our children's future.

Now, from the start of this campaign I've identified this as one

of my top priorities, and here's what I think we have to do.

Number one, we do need to expand domestic production. And that

means, for example, telling the oil companies the 68 million acres

that they currently have leased that they're not drilling, use 'em or

lose 'em. And I think that we should look at offshore drilling and

implement it in a way that allows us to get some additional oil.

But understand, we only have 3 (percent) to 4 percent of the

world's oil reserves and we use 25 percent of the world's oil, which

means that we can't drill our way out of the problem. And that's why

I focused on putting resources into solar, wind, biodiesel,

geothermal. These have been priorities of mine since I got to the

Senate, and it is absolutely critical we -- that we develop a high-

fuel-efficient car that's built not in Japan and not in South Korea,

but built here in the United States of America.

We -- we invented the auto industry, and the fact that we have fallen

so far behind is something that we have to work on.

Now, I just want to make one last point because Senator McCain

mentioned NAFTA and the issue of trade, and that actually bears on

this issue. I believe in free trade, but I also believe that for far

too long, certainly during the course of the Bush administration with

the support of Senator McCain, the attitude's been that any trade

agreement is a good trade agreement. And NAFTA doesn't have -- did

not have enforceable labor agreements and environmental agreements,

and what I said was we should incluse (sic) those and make them

enforceable in the same way that we should enforce rules against China

manipulating its currency to make our exports more expensive and their

exports to us cheaper. And when it comes to South Korea, we've got a

trade agreement up right now -- they are sending hundreds of thousands

of South Korean cars into the United States -- that's all good -- we

can only get 4(,000 to 5,000 into South Korea. That is not free

trade. We've got to have a president who is going to be advocating on

behalf of American businesses and American workers, and I make no

apology for that.

MR. SCHIEFFER: Senator.

SEN. MCCAIN: Well, you know, I -- I -- I admire so much Senator

Obama's eloquence, and you really have to pay attention to words. He

said we will "look at" offshore drilling. Did you get that? "Look

at." We can offshore drill now. We've got to do it now. We will

reduce the cost of a barrel of oil because we show the world that we

have a supply of our own. It's doable, the technology is there, and

we have to drill now.

Now, on the subject of free trade agreements, I am a free trader.

And I need -- we need to have education and training programs for

displaced workers that work, going to our community colleges. But let

me give you another example of a free trade agreement that Senator

Obama opposes.

Right now because of previous agreements, some made by President

Clinton, the goods and products that we send to Colombia, which is our

largest agricultural importer of our products, there's 100 -- there's

$1 billion that we -- our businesses have paid so far, in order to get

our goods in there. Because of previous agreements, their goods and

products come into our country for free.

So Senator Obama, who has never traveled south of our border,

opposes the Colombia free trade agreement; the same country that's

helping us try to stop the flow of drugs, into our country, that's

killing young Americans, and also the country that just freed three

Americans that -- that will help us create jobs in America, because

they will be a market for our goods and products without have to pay

-- without us having to pay the billions of dollar -- the billion

dollars and more that we've already paid.

Free trade with Colombia is something that's a no-brainer. But

maybe you ought to travel down there and visit them and maybe you

could understand it a lot better.

SEN. OBAMA: Let me respond. Actually I understand it pretty

well.

The history in Colombia right now is that labor leaders have been

targeted for assassination, on a fairly consistent basis, and there

have not been prosecutions.

And what I have said, because the free trade -- the trade

agreement itself does have labor and environmental protections -- but

we have to stand for human rights and we have to make sure that

violence isn't being perpetrated against workers who are just trying

to organize for their rights, which is why, for example, I supported

the Peruvian Free Trade Agreement, which was a well-structured

agreement.

But I think that the important point is we've got to have a

president who understands the benefits of free trade, but also is

going to enforce unfair trade agreements and is going to stand up to

other countries.

And last point I'll make, because we started on energy, you know,

when I talked about the auto makers, they are obviously getting

hammered right now. They were already -- already having a tough time

because of high gas prices, and now, with the financial crisis, car

dealerships are closing and people can't get car loans. That's why I

think it's important for us to get loan guarantees to the auto makers.

But we do have to hold them responsible, as well, to start

producing the highly fuel-efficient cars of the future. And, you

know, Detroit had dragged its feet too long in terms of getting that

done. It's going to be one of my highest priorities, because

transportation accounts for about 30 percent of our total energy

consumption. If we can get that right, then we can move in a

direction not only of energy independence, but we can create 5 million

new jobs all across America, including in the heartland, where we can

retool some of these plants to make these highly fuel-efficient cars,

and also to make wind turbines and -- and solar panels, the kinds of

clean energy approaches that should be the driver of our economy for

the next -- for the next century.

SEN. MCCAIN: Well, let me just say that -- that this is -- he --

Senator Obama doesn't want a free trade agreement with our best ally

in the region but wants to sit down across the table without

precondition to -- with Hugo Chavez, the guy who has been helping

FARC, the terrorist organization. Free trade between ourselves and

Colombia, I -- I just recited to you the benefits of concluding that

agreement -- a billion dollars of American dollars that could have

gone to creating jobs and businesses in the United States, opening up

those markets. So I don't think there's any doubt that Senator Obama

wants to restrict trade, and he wants to raise taxes. And the last

president of the United States that tried that was Herbert Hoover, and

we went from a deep recession into a depression. We're not going to

follow that path while I'm -- when I'm president of the United States.

(QUESTION #8)

MR. SCHIEFFER: All right. Let's go to a new topic, health care.

Given the current economic situation, would either of you now favor

controlling health care costs over expanding health care coverage?

The question is first to Senator Obama.

SEN. OBAMA: We've got to do both, and that's exactly what my

plan does.

Look, as I travel around the country, this is the issue that will

break your heart over and over again. Just yesterday I was in Toledo,

shaking some hands in a line. Two women, both of them probably in

their mid- to late 50s, had just been laid off of their plant.

Neither of them have health insurance. And they were desperate for

some way of getting coverage because, understandably, they're worried

that if they get sick, they could go bankrupt.

So here -- here's what my plan does.

If you have health insurance, then you don't have to do anything.

If you've got health insurance through your employer, you can keep

your health insurance, keep your choice of doctor, keep your plan.

The only thing we're going to try to do is lower costs so that those

cost savings are passed on to you. And we estimate we can cut the

average family's premium by about $2,500 per year.

If you don't have health insurance, then what we're going to do

is to provide you the option of buying into the same kind of federal

pool that both Senator McCain and I enjoy as federal employees, which

will give you high-quality care, choice of doctors, at lower cost

because so many people are part of this insured group.

We're going to make sure that insurance companies can't

discriminate on the basis of preexisting conditions. We'll negotiate

with the drug companies for the cheapest available price on drugs. We

are going to invest in information technology to eliminate bureaucracy

and make the system more efficient.

And we are going to make sure that we manage chronic illnesses like

diabetes and heart disease that cost a huge amount but could be

prevented.

We've got to put more money into preventive care. This will cost

some money on the front end. But over the long term, this is the only

way that not only are we going to make families healthy, but it's also

how we're going to save the federal budget, because we can't afford

these escalating costs.

MR. SCHIEFFER: All right.

Senator McCain.

SEN. MCCAIN: Well, it is a terribly painful situation for

Americans. They're seeing their premiums, their co-pays go up. 47

million Americans are without health insurance in American today. And

it really is the costs, the escalating costs of health care that are

inflicting such pain on working families and people across this

country. And I am convinced we need to do a lot of things.

We need to put health care records online. The VA does that.

That will -- that will reduce costs. We need to have more community

health centers. We need to have walk-in clinics.

The rise of obesity amongst young Americans is one of the most

alarming statistics that there is. We should have physical fitness

programs and nutrition programs in schools. Every parent should know

what's going on there.

We need to have -- we need to have employers reward employees who

join health clubs and practice wellness and fitness. But I want to

give every American family a $5,000 refundable tax credit. Take it

and get, anywhere in America, the health care that you wish.

Now, my old buddy Joe, Joe the plumber, is out there. Now, Joe,

Senator Obama's plan: If you're a small business and you're able and

you're -- the guy that sells to you will not have a capital gains tax

increase, which Senator Obama wants.

If you're out there, my friend, and you've got employees and you've

got kids, if you don't adopt the health care plan that Senator Obama

mandates, he's going to fine you.

Now, Senator Obama, I'd like -- still like to know what that

fine's going to be. And I don't think that Joe right now wants to pay

a fine when he is seeing such difficult times in America's economy.

Senator Obama wants to set up health care bureaucracies, take over the

health care of America through -- as he said, his object is a single-

payer system. If you like that -- you'll -- you would love Canada and

England.

MR. SCHIEFFER: Is that your objective?

SEN. MCCAIN: So the point is -- so --

SEN. OBAMA: It is -- it is not. And I just described it --

SEN. MCCAIN: No, you stated it -- excuse me --

SEN. OBAMA: I just described what my plan is. And I'm happy to

talk to you, Joe, too, if you're out there. Here's your fine: zero.

SEN. MCCAIN: Zero?

SEN. OBAMA: You won't pay a fine because -- zero -- because I --

as I said in our last debate -- and I'll repeat, John -- I exempt

small businesses from the requirement for large businesses that can

afford to provide health care to their employees but are not doing it.

I exempt small businesses from having to pay into a kitty. But large

businesses that can afford it -- we've got a choice. Either they

provide health insurance to their employees or somebody has to.

Right now what happens is those employees get dumped into either

the Medicaid system, which taxpayers pick up, or they're going to the

emergency room for uncompensated care, which everybody picks up in

their premiums. The average family is paying an additional $900 a year in higher premiums because of the uninsured.

So here's what we do. We exempt small businesses. In fact, what, Joe, if you want to do the right thing with your employees and you want to provide them health insurance, we'll give you a 50 percent credit so that you will actually be able to afford it.

If you don't have health insurance or you want to buy into a group plan, you will be able to buy into the plan that I just described.

Now, what we haven't talked about is Senator McCain's plan. He says he's going to give you all a $5,000 tax credit. That sounds pretty good. And you can go out and buy your own insurance.

Here's the problem -- that for about 20 million people, you may find yourselves no longer having employer-based health insurance. This is because younger people might be able to get health insurance for $5,000, young and healthy folks.

Older folks, let's healthy folks, what's going to end up happening is that you're going to be the only ones left in your employer-based system, your employers won't be able to afford it.

And once you're out on your own with this $5,000 credit, Senator McCain, for the first time, is going to be taxing the health care benefits that you have from your employer.

And this is your plan, John. For the first time in history, you will be taxing people's health care benefits.

By the way, the average policy costs about $12,000. So if you've got $5,000 and it's going to cost you $12,000, that's a loss for you.

Last point about Senator McCain's plan is that insurers right now, the main restrictions on what they do is primarily state law and, under Senator McCain's plan, those rules would be stripped away and you would start seeing a lot more insurance companies cherry-picking and excluding people from coverage.

That, I think, is a mistake and I think that this is a fundamental difference in our campaign and how we would approach health care.

SCHIEFFER: What about that?

MCCAIN: Hey, Joe, you're rich, congratulations, because what Joe wanted to do was buy the business that he's been working for 10-12 hours a day, seven days a week, and you said that you wanted to spread the wealth, but -- in other words, take Joe's money and then you decide what to do with it.

Now, Joe, you're rich, congratulations, and you will then fall into the category where you'll have to pay a fine if you don't provide health insurance that Senator Obama mandates, not the kind that you think is best for your family, your children, your employees, but the kind that he mandates for you.

That's big government at its best. Now, 95 percent of the people in America will receive more money under my plan because they will receive not only their present benefits, which may be taxed, which will be taxed, but then you add $5,000 onto it, except for those people who have the gold-plated Cadillac insurance policies that have to do with cosmetic surgery and transplants and all of those kinds of things.

And the good thing about this is they'll be able to go across America. The average cost of a health care insurance plan in America today is $5,800. I'm going to give them $5,000 to take with them wherever they want to go, and this will give them affordability.

This will give them availability. This will give them a chance to choose their own futures, not have Senator Obama and government decide that for them.

This really gets down to the fundamental difference in our philosophies. If you notice that in all of this proposal, Senator -- government wants -- Senator Obama wants government to do the job.

Senator Obama wants government to do the job. I want, Joe, you to do the job.

MCCAIN: I want to leave money in your pocket. I want you to be able to choose the health care for you and your family. That's what I'm all about. And we've got too much government and too much spending and the government is -- the size of government has grown by 40 percent in the last eight years.

We can't afford that in the next eight years and Senator Obama, with the Democrats in charge of Congress, things have gotten worse. Have you noticed, they've been in charge the last two years.

SCHIEFFER: All right. A short response.

OBAMA: Very briefly. You all just heard my plan. If you've got an employer-based health care plan, you keep it. Now, under Senator McCain's plan there is a strong risk that people would lose their employer-based health care.

That's the choice you'll have is having your employer no longer provide you health care. And don't take my word for it. The U.S. Chamber of Commerce, which generally doesn't support a lot of Democrats, said that this plan could lead to the unraveling of the employer-based health care system.

All I want to do, if you've already got health care, is lower your costs. That includes you, Joe.

(QUESTION #9)

SCHIEFFER: All right. Let's stop there and go to another question. And this one goes to Senator McCain. Senator McCain, you believe Roe v. Wade should be overturned. Senator Obama, you believe it shouldn't.

Could either of you ever nominate someone to the Supreme Court who disagrees with you on this issue? Senator McCain?

MCCAIN: I would never and have never in all the years I've been there imposed a litmus test on any nominee to the court. That's not appropriate to do.

SCHIEFFER: But you don't want Roe v. Wade to be overturned?

MCCAIN: I thought it was a bad decision. I think there were a lot of decisions that were bad. I think that decisions should rest in the hands of the states. I'm a federalist. And I believe strongly that we should have nominees to the United States Supreme Court based on their qualifications rather than any litmus test. Now, let me say that there was a time a few years ago when the United States Senate was about to blow up. Republicans wanted to have just a majority vote to confirm a judge and the Democrats were blocking in an unprecedented fashion.

We got together seven Republicans, seven Democrats. You were offered a chance to join. You chose not to because you were afraid of the appointment of, quote, "conservative judges."

I voted for Justice Breyer and Justice Ginsburg. Not because I agreed with their ideology, but because I thought they were qualified and that elections have consequences when presidents are nominated. This is a very important issue we're talking about.

Senator Obama voted against Justice Breyer and Justice Roberts on the grounds that they didn't meet his ideological standards. That's not the way we should judge these nominees. Elections have consequences. They should be judged on their qualifications. And so that's what I will do.

I will find the best people in the world -- in the United States of America who have a history of strict adherence to the Constitution. And not legislating from the bench.

SCHIEFFER: But even if it was someone -- even someone who had a history of being for abortion rights, you would consider them?

MCCAIN: I would consider anyone in their qualifications. I do not believe that someone who has supported Roe v. Wade that would be part of those qualifications. But I certainly would not impose any litmus test.

SCHIEFFER: All right.

OBAMA: Well, I think it's true that we shouldn't apply a strict litmus test and the most important thing in any judge is their capacity to provide fairness and justice to the American people.

And it is true that this is going to be, I think, one of the most consequential decisions of the next president. It is very likely that one of us will be making at least one and probably more than one appointments and Roe versus Wade probably hangs in the balance.

Now I would not provide a litmus test. But I am somebody who believes that Roe versus Wade was rightly decided. I think that abortion is a very difficult issue and it is a moral issue and one that I think good people on both sides can disagree on.

But what ultimately I believe is that women in consultation with their families, their doctors, their religious advisers, are in the best position to make this decision. And I think that the Constitution has a right to privacy in it that shouldn't be subject to state referendum, any more than our First Amendment rights are subject to state referendum, any more than many of the other rights that we have should be subject to popular vote.

OBAMA: So this is going to be an important issue. I will look for those judges who have an outstanding judicial record, who have the intellect, and who hopefully have a sense of what real-world folks are going through.

I'll just give you one quick example. Senator McCain and I disagreed recently when the Supreme Court made it more difficult for a woman named Lilly Ledbetter to press her claim for pay discrimination.

For years, she had been getting paid less than a man had been paid for doing the exact same job. And when she brought a suit, saying equal pay for equal work, the judges said, well, you know, it's taken you too long to bring this lawsuit, even though she didn't know about it until fairly recently.

We tried to overturn it in the Senate. I supported that effort to provide better guidance to the courts; John McCain opposed it.

I think that it's important for judges to understand that if a woman is out there trying to raise a family, trying to support her family, and is being treated unfairly, then the court has to stand up, if nobody else will. And that's the kind of judge that I want.

SCHIEFFER: Time's up.

MCCAIN: Obviously, that law waved the statute of limitations, which you could have gone back 20 or 30 years. It was a trial lawyer's dream.

Let me talk to you about an important aspect of this issue. We have to change the culture of America. Those of us who are proudly pro-life understand that. And it's got to be courage and compassion that we show to a young woman who's facing this terribly difficult decision.

Senator Obama, as a member of the Illinois State Senate, voted in the Judiciary Committee against a law that would provide immediate medical attention to a child born of a failed abortion. He voted against that.

And then, on the floor of the State Senate, as he did 130 times as a state senator, he voted present.

Then there was another bill before the Senate Judiciary Committee in the state of Illinois not that long ago, where he voted against a ban on partial-birth abortion, one of the late-term abortion, a really -- one of the bad procedures, a terrible. And then, on the floor of the Illinois State Senate, he voted present.

I don't know how you vote "present" on some of that. I don't know how you align yourself with the extreme aspect of the pro- abortion movement in America. And that's his record, and that's a matter of his record.

And he'll say it has something to do with Roe v. Wade, about the Illinois State Senate. It was clear-cut votes that Senator Obama voted, I think, in direct contradiction to the feelings and views of mainstream America.

SCHIEFFER: Response?

OBAMA: Yes, let me respond to this. If it sounds incredible that I would vote to withhold lifesaving treatment from an infant, that's because it's not true. The -- here are the facts.

There was a bill that was put forward before the Illinois Senate that said you have to provide lifesaving treatment and that would have helped to undermine Roe v. Wade. The fact is that there was already a law on the books in Illinois that required providing lifesaving treatment, which is why not only myself but pro-choice Republicans and Democrats voted against it.

And the Illinois Medical Society, the organization of doctors in Illinois, voted against it. Their Hippocratic Oath would have required them to provide care, and there was already a law in the books.

With respect to partial-birth abortion, I am completely supportive of a ban on late-term abortions, partial-birth or otherwise, as long as there's an exception for the mother's health and life, and this did not contain that exception.

And I attempted, as many have in the past, of including that so that it is constitutional. And that was rejected, and that's why I voted present, because I'm willing to support a ban on late-term abortions as long as we have that exception.

The last point I want to make on the issue of abortion. This is an issue that -- look, it divides us. And in some ways, it may be difficult to -- to reconcile the two views.

But there surely is some common ground when both those who believe in choice and those who are opposed to abortion can come together and say, "We should try to prevent unintended pregnancies by providing appropriate education to our youth, communicating that sexuality is sacred and that they should not be engaged in cavalier activity, and providing options for adoption, and helping single mothers if they want to choose to keep the baby."

Those are all things that we put in the Democratic platform for the first time this year, and I think that's where we can find some common ground, because nobody's pro-abortion. I think it's always a tragic situation.

OBAMA: We should try to reduce these circumstances.

SCHIEFFER: Let's give Senator McCain a short response...

MCCAIN: Just again...

SCHIEFFER: ... and then...

MCCAIN: Just again, the example of the eloquence of Senator Obama. He's health for the mother. You know, that's been stretched by the pro-abortion movement in America to mean almost anything.

That's the extreme pro-abortion position, quote, "health." But, look, Cindy and I are adoptive parents. We know what a treasure and joy it is to have an adopted child in our lives. We'll do everything we can to improve adoption in this country.

But that does not mean that we will cease to protect the rights of the unborn. Of course, we have to come together. Of course, we have to work together, and, of course, it's vital that we do so and help these young women who are facing such a difficult decision, with a compassion, that we'll help them with the adoptive services, with the courage to bring that child into this world and we'll help take care of it.

(QUESTION #10)

SCHIEFFER: Let's stop there, because I want to get in a question on education and I'm afraid this is going to have to be our last question, gentlemen.

The question is this: the U.S. spends more per capita than any other country on education. Yet, by every international measurement, in math and science competence, from kindergarten through the 12th grade, we trail most of the countries of the world.

The implications of this are clearly obvious. Some even say it poses a threat to our national security.

Do you feel that way and what do you intend to do about it?

The question to Senator Obama first.

OBAMA: This probably has more to do with our economic future than anything and that means it also has a national security implication, because there's never been a nation on earth that saw its economy decline and continued to maintain its primacy as a military power. So we've got to get our education system right. Now, typically, what's happened is that there's been a debate between more money or reform, and I think we need both.

In some cases, we are going to have to invest. Early childhood education, which closes the achievement gap, so that every child is prepared for school, every dollar we invest in that, we end up getting huge benefits with improved reading scores, reduced dropout rates, reduced delinquency rates.

I think it's going to be critically important for us to recruit a generation of new teachers, an army of new teachers, especially in math and science, give them higher pay, give them more professional development and support in exchange for higher standards and accountability.

And I think it's important for us to make college affordable. Right now, I meet young people all across the country who either have decided not to go to college or if they're going to college, they are taking on $20,000, $30,000, $50,000, $60,000 worth of debt, and it's very difficult for them to go into some fields, like basic research in science, for example, thinking to themselves that they're going to have a mortgage before they even buy a house.

And that's why I've proposed a $4,000 tuition credit, every student, every year, in exchange for some form of community service, whether it's military service, whether it's Peace Corps, whether it's working in a community.

If we do those things, then I believe that we can create a better school system.

But there's one last ingredient that I just want to mention, and that's parents. We can't do it just in the schools. Parents are going to have to show more responsibility. They've got to turn off the TV set, put away the video games, and, finally, start instilling that thirst for knowledge that our students need.

SCHIEFFER: Senator McCain?

MCCAIN: Well, it's the civil rights issue of the 21st century. There's no doubt that we have achieved equal access to schools in America after a long and difficult and terrible struggle.

But what is the advantage in a low income area of sending a child to a failed school and that being your only choice?

So choice and competition amongst schools is one of the key elements that's already been proven in places in like New Orleans and New York City and other places, where we have charter schools, where we take good teachers and we reward them and promote them.

And we find bad teachers another line of work. And we have to be able to give parents the same choice, frankly, that Senator Obama and Mrs. Obama had and Cindy and I had to send our kids to the school -- their kids to the school of their choice. Charter schools aren't the only answer, but they're providing competition. They are providing the kind of competitions that have upgraded both schools -- types of schools.

Now, throwing money at the problem is not the answer. You will find that some of the worst school systems in America get the most money per student.

So I believe that we need to reward these good teachers.

MCCAIN: We need to encourage programs such as Teach for America and Troops to Teachers where people, after having served in the military, can go right to teaching and not have to take these examinations which -- or have the certification that some are required in some states.

Look, we must improve education in this country. As far as college education is concerned, we need to make those student loans available. We need to give them a repayment schedule that they can meet. We need to have full student loan program for in-state tuition. And we certainly need to adjust the certain loan eligibility to inflation.

(QUESTION #11)

SCHIEFFER: Do you think the federal government should play a larger role in the schools? And I mean, more federal money?

OBAMA: Well, we have a tradition of local control of the schools and that's a tradition that has served us well. But I do think that it is important for the federal government to step up and help local school districts do some of the things they need to do.

Now we tried to do this under President Bush. He put forward No Child Left Behind. Unfortunately, they left the money behind for No Child Left Behind. And local school districts end up having more of a burden, a bunch of unfunded mandates, the same kind of thing that happened with special education where we did the right thing by saying every school should provide education to kids with special needs, but we never followed through on the promise of funding, and that left local school districts very cash-strapped.

So what I want to do is focus on early childhood education, providing teachers higher salaries in exchange for more support. Senator McCain and I actually agree on two things that he just mentioned.

Charter schools, I doubled the number of charter schools in Illinois despite some reservations from teachers unions. I think it's important to foster competition inside the public schools.

And we also agree on the need for making sure that if we have bad teachers that they are swiftly -- after given an opportunity to prove themselves, if they can't hack it, then we need to move on because our kids have to have their best future.

Where we disagree is on the idea that we can somehow give out vouchers -- give vouchers as a way of securing the problems in our education system. And I also have to disagree on Senator McCain's record when it comes to college accessibility and affordability.

Recently his key economic adviser was asked about why he didn't seem to have some specific programs to help young people go to college and the response was, well, you know, we can't give money to every interest group that comes along.

I don't think America's youth are interest groups, I think they're our future. And this is an example of where we are going to have to prioritize. We can't say we're going to do things and then not explain in concrete terms how we're going to pay for it.

And if we're going to do some of the things you mentioned, like lowering loan rates or what have you, somebody has got to pay for it. It's not going to happen on its own.

SCHIEFFER: What about that, Senator?

MCCAIN: Well, sure. I'm sure you're aware, Senator Obama, of the program in the Washington, D.C., school system where vouchers are provided and there's a certain number, I think it's a thousand and some and some 9,000 parents asked to be eligible for that.

Because they wanted to have the same choice that you and I and Cindy and your wife have had. And that is because they wanted to choose the school that they thought was best for their children.

And we all know the state of the Washington, D.C., school system. That was vouchers. That was voucher, Senator Obama. And I'm frankly surprised you didn't pay more attention to that example.

Now as far as the No Child Left Behind is concerned, it was a great first beginning in my view. It had its flaws, it had its problems, the first time we had looked at the issue of education in America from a nationwide perspective. And we need to fix a lot of the problems. We need to sit down and reauthorize it.

But, again, spending more money isn't always the answer. I think the Head Start program is a great program. A lot of people, including me, said, look, it's not doing what it should do. By the third grade many times children who were in the Head Start program aren't any better off than the others.

Let's reform it. Let's reform it and fund it. That was, of course, out-of-bounds by the Democrats. We need to reform these programs. We need to have transparency. We need to have rewards. It's a system that cries out for accountability and transparency and the adequate funding.

And I just said to you earlier, town hall meeting after town hall meeting, parents come with kids, children -- precious children who have autism. Sarah Palin knows about that better than most. And we'll find and we'll spend the money, research, to find the cause of autism. And we'll care for these young children. And all Americans will open their wallets and their hearts to do so.

MCCAIN: But to have a situation, as you mentioned in our earlier comments, that the most expensive education in the world is in the United States of America also means that it cries out for reform, as well.

And I will support those reforms, and I will fund the ones that are reformed. But I'm not going to continue to throw money at a problem. And I've got to tell you that vouchers, where they are requested and where they are agreed to, are a good and workable system. And it's been proven.

OBAMA: I'll just make a quick comment about vouchers in D.C. Senator McCain's absolutely right: The D.C. school system is in terrible shape, and it has been for a very long time. And we've got a wonderful new superintendent there who's working very hard with the young mayor there to try...

MCCAIN: Who supports vouchers.

OBAMA: ... who initiated -- actually, supports charters.

MCCAIN: She supports vouchers, also.

OBAMA: But the -- but here's the thing, is that, even if Senator McCain were to say that vouchers were the way to go -- I disagree with him on this, because the data doesn't show that it actually solves the problem -- the centerpiece of Senator McCain's education policy is to increase the voucher program in D.C. by 2,000 slots.

That leaves all of you who live in the other 50 states without an education reform policy from Senator McCain.

So if we are going to be serious about this issue, we've got to have a president who is going to tackle it head-on. And that's what I intend to do as president.

SCHIEFFER: All right.

MCCAIN: Because there's not enough vouchers; therefore, we shouldn't do it, even though it's working. I got it.

(FINAL CLOSING STATEMENTS)

SCHIEFFER: All right.

Gentlemen, we have come to the close. Before I ask both of you for your closing statements tonight, I'd like to invite our viewers and listeners to go to MyDebates.org, where you will find this evening's debates and the three that preceded tonight's debate.

Now, for the final statements, by a coin toss, Senator McCain goes first.

MCCAIN: Well, thank you again, Bob.

Thanks to Hofstra.

And it's great to be with you again. I think we've had a very healthy discussion.

My friends, as I said in my opening remarks, these are very difficult times and challenges for America. And they were graphically demonstrated again today.

America needs a new direction. We cannot be satisfied with what we've been doing for the last eight years.

I have a record of reform, and taking on my party, the other party, the special interests, whether it be an HMO Patients' Bill of Rights, or trying to clean up the campaign finance system in -- in this country, or whether it be establishment of a 9/11 Commission, I have a long record of it.

And I've been a careful steward of your tax dollars. We have to make health care affordable and available. We have to make quality education there for all of our citizens, not just the privileged few.

We have to stop the spending. We have to stop the spending, which has mortgaged your children's futures.

All of these things and all the promises and commitments that Senator Obama and I made (inaudible) made to you tonight will base -- will be based on whether you can trust us or not to be careful stewards of your tax dollar, to make sure America is safe and secure and prosperous, to make sure we reform the institutions of government.

That's why I've asked you not only to examine my record, but my proposals for the future of this country.

I've spent my entire life in the service of this nation and putting my country first. As a long line of McCains that have served our country for a long time in war and in peace, it's been the great honor of my life, and I've been proud to serve.

And I hope you'll give me an opportunity to serve again. I'd be honored and humbled.

SCHIEFFER: Senator?

OBAMA: Well, I want to thank Senator McCain and Bob for moderating.

I think we all know America is going through tough times right now. The policies of the last eight years and -- and Washington's unwillingness to tackle the tough problems for decades has left us in the worst economic crisis since the Great Depression.

And that's why the biggest risk we could take right now is to adopt the same failed policies and the same failed politics that we've seen over the last eight years and somehow expect a different result.

We need fundamental change in this country, and that's what I'd like to bring.

You know, over the last 20 months, you've invited me into your homes. You've shared your stories with me. And you've confirmed once again the fundamental decency and generosity of the American people.

And that's why I'm sure that our brighter days are still ahead.

But we're going to have to invest in the American people again, in tax cuts for the middle class, in health care for all Americans, and college for every young person who wants to go. In businesses that can create the new energy economy of the future. In policies that will lift wages and will grow our middle class.

These are the policies I have fought for my entire career. And these are the policies I want to bring to the White House.

But it's not going to be easy. It's not going to be quick. It is going to be requiring all of us -- Democrats, Republicans, independents -- to come together and to renew a spirit of sacrifice and service and responsibility.

I'm absolutely convinced we can do it. I would ask for your vote, and I promise you that if you give me the extraordinary honor of serving as your president, I will work every single day, tirelessly, on your behalf and on the behalf of the future of our children.

Thank you very much.

SCHIEFFER: Senator Obama, Senator McCain, thank you very much.

This concludes the final debate. I'm Bob Schieffer of CBS News, and I will leave you tonight with what my mother always said -- go vote now. It will make you feel big and strong. Good night, everyone.

END