The following is a rush transcript of the August 9, 2009, edition of "FOX News Sunday With Chris Wallace." This copy may not be in its final form and may be updated.

CHRIS WALLACE, HOST: Joining us now to discuss the economy, health care reform and more is the Republican's top man in Washington, Senator Mitch McConnell.

And, Senator, welcome back to "FOX News Sunday."


WALLACE: Let's start with the relatively good economic news recently. The unemployment rate declined in July for the first time in 15 months. Two hundred forty-seven people lost jobs, as compared to 741,000 in January. The stock market is up 49 percent since March.

Question: Does President Obama deserve any credit for turning the economy around?

MCCONNELL: Well, I certainly hope that the economy is turning around. And there are some good signs.

You do have to wonder, though, whether the stimulus has had any impact at all. Only 16 percent of it has been spent. We've run up an enormous debt. And it was sold to us as holding unemployment at 8 percent or under, and now it's 9.4 percent.

I don't think the actions of the administration have had a whole lot to do with this. But look. If the economy is getting better, we're all happy about that.

What I think the administration would be better off doing at this point, rather than running banks and insurance companies and automobile companies and student loans and now trying to get into health care, would be to do something about this massive national debt we're running up.

We're going to have a million — a $1.8 trillion deficit this one year, Chris. That's more than the last five years combined.

At the rate we're going, if their budget is carried out, we'll double the national debt in five years and triple it in 10. This is not an appropriate direction for our country to take.

WALLACE: You say that the president's stimulus plan has been — your phrase — short on job creation. But both White House and private economists say that it saved or created half a million jobs in the second quarter, including thousands of jobs in your state of Kentucky.

Do you really think we would be better off without any more stimulus?

MCCONNELL: Yeah, I do. Only 16 percent of the stimulus has been spent. There's nobody who credibly believes you can estimate a job that was saved, that — what caused a job to be saved. There's no way to estimate that.

What we do know for sure is we're running up these massive debts. And I think we ought to reconsider whether we really want to spend all of this roughly trillion dollars over the next three or four years if the economy's coming back as a result of the ingenuity of the American people.

Do we really want to add this kind of money to the debt?

WALLACE: Well, let me ask you about one stimulus program, and that was "cash for clunkers." At the start of this last week, there was some talk from some Republicans, including Jim DeMint and John McCain, about filibustering it.

But in the end, you guys let it sail through. Seven Republicans voted for the $2 billion extension. In effect, didn't the GOP cave on "cash for clunkers?"

MCCONNELL: Well, I think "cash for clunkers" certainly demonstrates that if you pay people to buy TVS or refrigerators or that sort of thing, you know, it'll — people will go out and do it. If the government pays them to buy things, they probably will.

WALLACE: But why didn't you put up more of a fight?

MCCONNELL: Well, we didn't have the votes to stop it.

WALLACE: Would you have — I know you voted against it.

MCCONNELL: I don't think it was a good idea. I mean, I think, clearly, if you provide this kind of generous bonus to Americans to purchase consumer items, they probably will.

I mean, some would argue they'd be foolish not to, if the government's going to give you $4,500 to do it. Whether that's good government policy is another matter. I opposed it because I don't think it's a good thing to do.

WALLACE: You talk about focusing on the deficit. At a time when this economy still is in a recession, at least until we have indications that it isn't, and we're still losing hundreds of thousands of jobs, would you really want to cut government spending right now in the next year?

MCCONNELL: Well, we shouldn't — certainly shouldn't make it any worse. I mean, they're trying to pass a trillion-dollar health care proposal which the Congressional Budget Office says is not deficit neutral. And their spending plans, as I just outlined, are just astronomical.

WALLACE: What are the prospects for the president's health care reform plan at this point?

MCCONNELL: I think it is in serious trouble, for good reason. First of all, Americans are very skeptical about putting the government in charge of all of American health care.

They're also skeptical as to whether it will be paid for. The Congressional Budget Office says it's not paid for.

And even if they become convinced that it's paid for, then you have to look at how it's being paid for. And about half of the estimated cost of this is being underwritten by cuts in Medicare, which may explain why you have an awful lot of angry people showing up at these town meetings already, and my suspicion is that will probably happen throughout August.

WALLACE: All right. I want to talk about the town halls in a second, but I do want to ask you one more question about the process on health care reform.

The so-called Gang of Six, which is three Democrats and three Republicans who are members of the Senate Finance Committee — and they're up on the screen there. They have been meeting to discuss a bipartisan compromise.

But there have been reports that the Republican leadership in the Senate — and that certainly would include you — don't want Republicans to make a deal. True or false?

MCCONNELL: We'd like to make a deal, but we'd like to make the right kind of deal. I mean, this is not about embarrassing anybody politically. This is about getting it right.

This is one-sixth of our economy. Health care is an enormous issue. It affects every single one of us. And we want to get it right.

WALLACE: Well, let me ask you a couple of specific questions that seem to be the basis for a possible compromise. Would you accept nonprofit cooperatives instead of a public plan as part of health reform?

MCCONNELL: Well, it sounds a lot like Fannie Mae and Freddie Mac to me. We know what ought to be done.

WALLACE: A separate agency, but it's basically...

MCCONNELL: Well, but it...

WALLACE: ... funded and guaranteed by the government.

MCCONNELL: Yeah, but it would have government money in it. It would be guaranteed by the government. It's just going to be kind of a — as I say, a kind of Fannie Mae or Freddie Mac.

WALLACE: So you'd be against that.

MCCONNELL: Yeah. No, that's not acceptable.

WALLACE: Would you accept taxing high-premium private insurance plans?

MCCONNELL: I think that's going to be very controversial as well.

Let's talk about what we ought to do. You're asking me about the various things the Democrats would like to do.

WALLACE: Well, I mean, those are things that the Republicans are talking about, too, in the Gang of Six.

MCCONNELL: Well, they're talking about lot of other things, too, like about doing something about lawsuits against doctors and hospitals; doing something about incentivizing wellness programs like the Safeway Corporation did, targeting obesity, smoking, high cholesterol, high blood pressure and lack of exercise.

They've actually been able to bend the cost curve by incentivizing their employees to improve their behavior.

Chris, equalizing the tax code, so that an individual who purchases health insurance gets the same tax benefit a corporation does — those are the kind of things that would actually have an impact.

WALLACE: OK. Let's talk — you brought up the town halls. As we all know, Democratic members of Congress have gone back to their districts. They're meeting with their constituents, and there have been some very loud and angry town halls.

Democrats say — some of these have been quite loud and quite angry, the complaints about the plan. Democrats say that conservative organizers are employing mob-style tactics and even Nazi-style tactics. Your reaction, sir?

MCCONNELL: Well, look. I think attacking citizens in our country for expressing their opinions about an issue of this magnitude may indicate some weakness in their position on the merits.

And I also think it's particularly absurd for the Democrats, who have over an $8 million e-mail list over at the DNC called Organize America, to be criticizing citizens for being organized.

Frankly, the truth of the matter is we don't know who's organized and who isn't. The point is the issue, the substance. They need to deal with it. Americans are concerned about it.

I suspect that a lot of these people, Chris, who are coming to these meetings are elderly people who are concerned about half-a- trillion-dollar cut in Medicare to pay — not to make Medicare sustainable, but to start a new program for other citizens.

WALLACE: Let me show you — and let's put up on the screen — some of these town hall meetings, because they've been pretty impassioned.

Have — from what you've seen — and you haven't had any yet, but you — you've certainly watched them on TV. Have some of the protesters gone over the line? And when you read that some organizers give people instructions — pack the hall, stand up and shout, rattle the members of Congress. Should they back off?

MCCONNELL: Look, I don't think either side ought to be trying to engage in disrupting meetings, either the Democratic side or the Republican side. We ought to focus on the issue.

And to demonize citizens who are — you know, who are energetic about this strikes me as demonstrating a kind of weakness in your position — in other words, you want to — you want to change the subject, and rather than talk about the half a trillion dollar in Medicare cuts, let's talk about somebody at some town meeting who misbehaved. It strikes me that's missing the point.

WALLACE: Well, I'm going to ask you one more question on that subject. What do you think of the White House asking its supporters to forward any e-mails or any claims they get that they think are, quote, "fishy" to the White House?

MCCONNELL: Well, it strikes me as the potential compilation of a — of a list of people that you don't like. It's reminiscent of previous administrations.

I think — look. We need to stop all of this effort and concentrate on the substance. This is an enormously important subject. Of course American citizens are concerned about it. And many of them are upset about it.

It's not just the town hall meetings, Chris. All the public polls indicate that support for what the administration is trying to do on health care is declining.

WALLACE: In the time we have left, which is a couple of minutes, let's do a lightning round of quick questions and quick answers. I know you always enjoy this exercise.

Is the Obama energy plan, cap and trade, dead for this year in the Senate?

MCCONNELL: I hope so.

WALLACE: Do you think so?

MCCONNELL: I hope so. I think it goes entirely in the wrong direction to put clamps on our economy when you know the Indians and the Chinese are not going to put clamps on their economy.

WALLACE: Do you think that there is — well, let me ask you a different way. What are the chances that the president will have something to sign this year — and I'm asking you not what you hope, but what you think as a political observer — that he'll have something significant to sign this year that he can genuinely call his version of reform?

MCCONNELL: Well, I think if we — if we made a strong bipartisan improvement in the health care system, I would love for him to be able to sign such a bill, and I'd love to be there with him.

WALLACE: Is there any way the president can meet his January deadline to shut down the terror detainee prison at Guantanamo?

MCCONNELL: He should not shut down Guantanamo. Guantanamo is a couple-of-hundred-million-dollar state-of-the-art facility with courtrooms for military commissions. This is a program that is not broke and doesn't need fixing.

WALLACE: But you just heard General Jones say he believes they can still make that January deadline. Whether you like it or not, do you think they can?

MCCONNELL: I think Congress will be, on a bipartisan basis, aggressively opposing the closing of Guantanamo, particularly when there's no plan to move them anywhere else.

WALLACE: Finally, I want to put up a poll this week, the Quinnipiac poll. When asked how they think congressional Democrats are doing, voters disapprove of the Democrats by a margin of 20 points. But when asked about Republicans, the margin is minus 30 points.

Senator, where do you think the GOP is now in terms of rebounding from 2006 and 2008 and winning back the support of the American people?

MCCONNELL: Well, I think the best evidence of that is candidate recruitment. We're going to have the best set of candidates in next year's elections than we've had in a long time.

These candidates would not be coming forward if they didn't think they had a great shot at winning. And they're also coming forward, Chris, because they're disturbed about the drift of this administration, particularly on the domestic side.

WALLACE: Senator McConnell, we want to thank you. Thank you, as always, for joining us. And please come back, sir.

MCCONNELL: Thank you, Chris.

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