This is a rush transcript from "Your World with Neil Cavuto," April 16, 2008. This copy may not be in its final form and may be updated.

NEIL CAVUTO, HOST: To the campaign trail and the attack on Senator John McCain's age today, this one coming from 75-year-old Congressman John Murtha.

The senator swinging back in a wide-ranging interview with me just moments ago.

(BEGIN VIDEOTAPE)

CAVUTO: All right, Senator, John Murtha, as you know, commented today, saying that, maybe you're too old to be president, telling a union audience: "I served with seven presidents. When they come in, they all make mistakes, they all get older. And this one guy running is about as old as I am. And let me tell you something, it's no old man's job."

Click here to watch John McCain address comments on his age

(LAUGHTER)

CAVUTO: What do you say?

(LAUGHTER)

SEN. JOHN MCCAIN (R-AZ), PRESIDENTIAL CANDIDATE: Well, I didn't know John was running, so I guess he will have to speak for himself.

But I invite John to come out with me on the campaign trail. I out- campaigned everybody else, and that's why I'm the nominee of my party. I can certainly out-campaign either Senator Obama or Senator Clinton. I would match my record and my schedule, not only now, but in the past, with anybody's.

And I guess Congressman Murtha will have to speak for himself and his own condition.

(LAUGHTER)

CAVUTO: You know, it's interesting, though, Senator. In a race where they're very touchy about mentioning race as an issue, feminism as an issue, age is okay.

MCCAIN: Yes.

CAVUTO: What do you make of that?

(LAUGHTER)

MCCAIN: I'm outraged, Neil.

(LAUGHTER)

MCCAIN: It should be never mentioned.

Look, I had to show my party in my campaign, not only my vision, but also my vigor and my strength. And the reason that I am, I believe, qualified is because I have the experience and the knowledge and the background to make the judgment necessary in this very difficult and challenging world, where we face a transcendent challenge of radical Islamic extremism.

There's no time for on-the-job training, seriously. My response to Jack Murtha is, look, we need somebody that needs no on-the-job training, that knows the challenges we face, and can take them head on and hit the ground running. That's what we need in a president in this part of America's history. And I'm the one that's qualified.

CAVUTO: As you also note today, sir, Jimmy Carter has indicated that tomorrow...

MCCAIN: Yes.

CAVUTO: ... the meeting with Hamas leaders is set; there's no way of changing that.

How do you feel about that?

MCCAIN: I think it's — the word that springs to mind is "unacceptable." And another one is "disgraceful."

These are thugs and murderers. Senator Obama and Senator Clinton should directly repudiate and tell President Carter he should not meet with what is fundamentally a terrorist, that's been responsible for the deaths of so many innocent people, and continues to articulate daily his organization and his personal dedication to the extinction of the state of Israel.

They are a terrorist organization. No former president of the United States should be meeting with them.

CAVUTO: All right. So, when Barack Obama says you do have to talk to your enemies, that you can't ignore your enemies, what do you say?

MCCAIN: I say that you cannot legitimize terrorists, murderers, thugs and give them a place on the world stage who violate every standard and norm that we stand for and believe in, including the innocent slaughter of civilians, and women, and children.

And, so, I strongly disagree. And, again, it's this issue of experience and judgment. Senator Obama does not have the experience to make the right judgment as to how to deal with terrorist organizations, obviously. Otherwise, he would never approve of such a meeting.

CAVUTO: I think you know, Senator, we have been in and out of another all-time high for oil and gas prices today...

MCCAIN: Yes.

CAVUTO: ... oil hovering around $114 a barrel. Many are sort of jumping on your proposal to nix the federal gas tax, about a little north of 18 cents, throughout the summer. Are you afraid, though, that by the time we get to the summer, we'll be up that much and more in gas prices?

MCCAIN: I'm very concerned about it, Neil.

And, obviously, the way that it's been going up is just terrible. But I think, psychologically — and a lot of our problems today, as you know, are psychological — confidence, trust, uncertainty about our economic future, ability to keep our own home. This might give them a little psychological boost.

Let's have some straight talk. It's not a huge amount of money, but it might be nice to be able to save a few bucks and maybe buy something else the next time that they have to fill up their gas tank, and say, you know, I'm going to be able to afford that little extra expense now, and a little psychological boost. That's what I think it would help.

But we also, I think, need to stop competing for a limited supply. As far as the Strategic Petroleum Reserve is concerned, let's just stop buying that as well. But it might be a nice thing to have.

CAVUTO: OK.

Sir, your respective opponents, Hillary Clinton and Barack Obama, have said of the housing crisis that much more needs to be done, a greater government role. And they have each proposed tens of billions of dollars worth of bailout or stimulus efforts to that regard.

Now, you had said, not too long ago, that it wasn't the government's obligation to rescue those who took out loans they couldn't afford. But, recently, you have indicated that you are open to more flexibility on the part of FHA-guaranteed loans.

Are you closer now to the bailout talk that they are speaking, or the old talk that you did?

MCCAIN: No, Neil.

And could I just clarify, when I said what I said, I didn't want to bail out greedy speculators or Wall Street people, I still don't. This proposal of mine — in fact, I think there should be — I have called for an investigation of some of these people and some of these practices which exploited innocent people.

But this is clearly tailored at the family that would — were able, previously, to afford their mortgage payments, and now find themselves in the jeopardy of losing their home. And, as you know, it would be a 30- year, guaranteed-by-the-FHA mortgage that have a lowered value of their home, so that they could then afford to make those payments. My estimates are that that could reach about 400,000 families in America.

But, in all due respect, I still said then — and I say now — the speculator that bought three or four homes and let them sit vacant on the prospects of flipping, these people on Wall Street who exploited people that never should have been eligible for a loan, so that they could make a quick buck, I think that they not only — that's — they should not be rewarded; I think they should be investigated.

CAVUTO: What about people who took out mortgages, sir, who didn't read them, either were too stupid, just didn't do their due diligence?

MCCAIN: Well, I think that's an argument, too, for a mortgage that's one-page long. I have never understood why these documents are as thick as they are.

But we also, you know — you know, Neil, there is something to Hank Paulson's proposal about consolidating some of these oversight agencies. I think it's — he's got a good idea there.

And I think the consolidation would then allow us to be more effective in protecting the consumer, as well as better oversight and ensuring transparency of some of these transactions, which obviously never should have taken place.

And, you know, it's — one of the keys to this, as you also know — and I'm sorry to make this gratuitous comment — but I think, once we could establish this base, this bottom of where in the home loan prices are — where the home prices are, then I think that's the beginning of the — Dare I use the phrase? — light at the end of the tunnel.

CAVUTO: Do you think we're close to that, or is that still a ways off?

MCCAIN: I think if we — if we got these 400,000 homeowners a mortgage that would keep them in their homes, I think that that would be a major step forward, particularly a psychological one.

I think there are some states — look, I'm not — you know, there's a lot smarter people are going to come on your program that spend every 24/7 on this. But I think there are some states — I know there are some states where conditions are better.

Unfortunately, that's not the case in California and Florida and, to a lesser degree, my state of Arizona. But I think we're headed in the right direction. But whatever we can do to accelerate that point — reaching that point — and I think telling honest homeowners that we're going to be able — you're going to be able to make your payments at the new value of your home, and, by the way, if you sell it — if you sell it — then those profits will go one-third to the lender, one-third to the federal government, and one-third to you, and that paper may be worth something someday, then — then I think that will make a significant contribution.

But it's hard, and it's tough.

CAVUTO: We have seen a number of airlines in trouble, safety questions, as you know, Senator, Delta and Northwest looking to merge. Others are expected to follow suit.

What do you think of those mergers? As president, not that you could vote yea or nay on them, are you...

MCCAIN: Yes.

CAVUTO: ... concerned that this is going to be a wave of maybe developments that could hurt the consumer?

MCCAIN: I'm very worried, of course. But I would point out that there is more consolidation in virtually every nation in the world than there is in our airline industry.

And I think we ought to recognize that the major factor that's driving some of this consolidation and the failures for four or five smaller airlines in the last few weeks is the price of oil — of oil.

We all know that their fuel costs have dramatically risen. And this is the argument for independence on foreign oil, half of our trade deficit — we could spend a whole program — and I hope we will — on energy and the need for our — the criticality of eliminating and — reducing and then eliminating our dependence on foreign oil. That's the contributing factor which has made these airlines not able to stand on their own or even — even survive.

So, how would I come down? I worry about it, but the option may be, in some cases — maybe not necessarily in this one — the option may be, in some case, whether that airline survives or not.

CAVUTO: Sir, tonight, your Democratic colleagues are going to have a debate, their last one before the Pennsylvania primary.

No doubt, one issue that's going to come up is Barack Obama's "bitter" comment, that people essentially use religion and illegal immigration, some of these other issues, when they have lost all hope, and that they're bitter and angry, and that's what happened.

How do you feel about that now you have had a chance to reflect on it? I know you have commented in the past. What are your thoughts now?

MCCAIN: I think it's an absolutely elitist comment, out of touch with America.

Small towns in America are the ones that experienced the great — the devastation of the Great Depression. They then went out and made the world safe for democracy, our greatest generation. To have, somehow, the ill- founded view that their economic circumstances affect their fundamental values and their hopes and dreams for the future of America, their religious faith, their confidence and belief in the Second Amendment of the Constitution of the United States, I think, is very telling.

And I think it is a — is something that the American people would steadfastly reject, at least in most parts of America.

CAVUTO: Do you think Barack Obama is arrogant or elitist?

MCCAIN: I think his comments are elitist. I absolutely do. I'm not accusing him of being it, but those comments can only be described as elitist and worse, because we have got to give Americans hope right now.

He talks about change all the time. Well, we need to give them hope and confidence.

I have a fundamental hope and belief and confidence in the future of America, and part of that future of America is going to come through the strength, the resilience and faith of people in small towns in Pennsylvania and across this country, where so many Americans have served and sacrificed for this nation.

CAVUTO: Finally, Senator, if I may, on your tax cuts and a lot of the other incentives proposed yesterday and again today, you had cautioned that much depends on how the economy is going.

And it gets me back to a statement you had made, that "I'm not making a 'read my lips' statement I will not raise taxes."

MCCAIN: Yes.

CAVUTO: Why didn't you?

MCCAIN: Well, look, I will not raise taxes. Let me just put it that way. As you know, the connotation of the quote, "Read my lips" — I will not raise taxes, OK?

In fact, my proposal is to reduce taxes, particularly doubling the dependent — the deduction for children — deduction for children from $3,500 to $7,000. That's keeping up with inflation. That's putting a freeze on — quote — "discretionary spending." That's a top-to-bottom review of government in saved dollars.

That is taking the $35 billion in the last two massive appropriations bills and canceling them. That's for giving Americans a holiday on their gas taxes so that they can maybe travel a little further and a little better this summer.

I want to give Americans relief — relief from taxes. And that's my goal, and I, again, hold to the firm conviction, the fundamental principle is that a reduction in taxes lead to growing economies and eventually increases in revenues. And increases in taxes have the opposite effect on entrepreneurs, on businesses and families in America. And that will be a clear difference of opinion between — and views and philosophy and vision between myself and either Senator Obama or Senator Clinton.

I'm sorry for the long answer, Neil.

CAVUTO: Not at all, Senator. Very well put.

Senator John McCain, thank you very much.

MCCAIN: Thank you.

CAVUTO: All right.

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