McCain: Obama Must Avoid Reagan's Mistakes in Budget Strategy

This is a rush transcript from "On the Record," April 13, 2011. This copy may not be in its final form and may be updated.

GRETA VAN SUSTEREN, FOX NEWS HOST: The president's called for $4 trillion in cuts over 12 years. And there are mixed reviews on the president's speech. As you might expect, the Republicans didn't like it. Republican congressman Jeb Hensarling said it wasn't worth missing lunch over. But even Vice President Biden didn't seem exactly dazzled by the speech. He looked a little bit like he was sleep. But maybe just listening with his eyes closed?

But here's the real question. Are we on the right track? Or here's a better question. Are we on any track at all, or is it just plain talk? We asked Senator John McCain what he thought of the president's speech.


SEN. JOHN MCCAIN, R-ARIZ.: I think two things. One, it was very non-specific. And number two is that he basically must have said then that the budget that he submitted to Congress -- remember these big thick books? We chopped down a lot of trees to get it. It was dead on arrival. And so the other aspect of it, of course, is that he said that they wanted to raise taxes on, quote, "rich people." So we'll -- we don't think that tax increases are at all necessary at this time, certainly, not in -- we're still in a severe recession.

VAN SUSTEREN: I'm sort of curious as to the timing. He could have waited until Monday or Tuesday, and he gives his 2012 speech -- this is about 2012 fiscal year budget speech. And we're still in the midst of this battle over 2011. It looks like it's going to go forward, that there's an agreement. But could his speech have possibly alienated a few Republicans or peeled off even members of his own party?

MCCAIN: I don't know. But I also know that we have a conflict going on in Libya, that thousands of people's lives are in danger in Misrata. People are being shelled and killed. They have no water, no electricity. And they're being by Qaddafi's troops. We still have the situation in Afghanistan and Iraq. But if the president wanted to give a speech, it's fine with me when he wants to give one. But I hope that he would consider the fact that we need to give better and more close air support to the rebels in Libya.

VAN SUSTEREN: I don't deny that we have a huge economic problem in this country, but one of the things that always bothers me, and I assume other taxpayers, is the issue of waste. About two weeks ago, a young freshman congressman got a unanimous vote having to do with waste at the Pentagon, $30 million dollars a year. Not going to solve our money problems, but nonetheless, it identifies waste -- unanimous.

The president said today in his speech that nobody wants to pay higher taxes. "Politicians are often eager to feed the impression that solving the problem is just a matter of eliminating waste and abuse." And then he goes on to say that tackling the deficit issue will require tough choices. Do you get a sense that there is a huge commitment to go after the waste and fraud? I mean, that's sort of -- does that just sort of get, like, lip service in campaigns? And does it matter? Is there a lot there?

MCCAIN: I think there's a lot there. I don't think there's any doubt. I mean, there's some 32 different bureaucracies that do the same job, for example, in, quote, "job training." And there's -- in Defense, there's outrageous cost overruns. Our latest fighter aircraft, the F-35, is almost double in original costs. That's true.

But we also have programs that we should eliminate. Why are we subsidizing ethanol? Billions of dollars a year. There's no reason for it. Many of the agricultural subsidies -- why are we subsidizing sugar? So there's so many areas where we have programs that benefit a few at the expense of many.

VAN SUSTEREN: Which is -- brings me back to the question, is that if we have to raise taxes on some people, whatever -- I mean, and I know that you're opposed to that -- is that should we not first figure out what we need? And should we not really have full speed ahead trying to find the waste and fraud because maybe we don't need as much as we think we do? Or maybe we could draw down the deficit and the debt faster.

MCCAIN: Well, obviously, the thing that will draw the debt down the fastest is economic growth. And right now, there are signs that that growth may be stalling. So if we increase taxes -- and one of the reasons why it may be is because of the increased cost of gasoline, as you know. But if that is stalling, then do we want to increase anybody's taxes? Obviously, we do not want to do that, at least, in my view.

And so the president -- and I want us not to ever forget, 1986, Ronald Reagan sat down with the Democrats and they made agreement. He said it was the worst agreement he ever made. He said, We'll cut spending. For every $3 we cut spending, we'll raise taxes by $1. You see that same kind of approach here taken by the president. Well, we didn't cut spending and we raised taxes. And obviously, that's something that we want to avoid, that mistake that Reagan made.

VAN SUSTEREN: Do you think there's been any appreciable difference in terms of revenue to the treasury, which would impact on what taxes may get raised or not raised, if, indeed, the stimulus program of February '09 had reduced the unemployment rate down to the 8 percent that was predicted? I mean, is -- I mean, is the stimulus program grossly disappointing, semi- disappointing or a huge success, partial success?

MCCAIN: Well, what the stimulus did was increase our debt and deficit by over a $1 trillion when you count in the interest accrued in addition to the $787 billion it is. And the promise was that maximum unemployment would be 8 percent. As you know, it's 8.8 percent. My home state of Arizona is still at 9.6. There's still nearly half the home in my home state of Arizona are underwater. That means they're worth less than their payments. So I think that the stimulus package was a total failure and it left another huge debt on the backs of our children and grandchildren.