This is a rush transcript of "Special Report With Brit Hume" from October 21, 2008. This copy may not be in its final form and may be updated.


SEN. JOHN MCCAIN, (R) PRESIDENTIAL CANDIDATE: Since you can't reduce income taxes on those who pay zero, the government will write them all checks, called a tax credit, and the treasury, and the treasury will have to cover those checks by taxing other people.

SEN. BARACK OBAMA, (D) PRESIDENTIAL CANDIDATE: What he is confusing is the fact that even if you don't pay income tax — there are a lot of people who don't pay income tax — you are still paying a whole lot of other taxes.


BRIT HUME, HOST: And, yes, some Republicans might say but we already have a program for those people. It's called an "earned income tax credit," which allows people who don't otherwise pay income taxes to get some money anyway in the form of that credit.

Some thoughts on this debate now from Mort Kondracke, Executive Editor for Roll Call, Jeff Birnbaum, managing editor digital of The Washington Times, and the syndicated columnist Charles Krauthammer, FOX News contributors all.

Well, we now have a debate in these final weeks triggered by a hypothetical question asked by the fabled Joe the plumber on Obama's tax plan, which led to a whole discussion of what his proposed tax cut for 95 percent of Americans would mean. Where does it stand, Mort?

MORT KONDRACKE, EDITOR OF ROLL CALL: Well, I think it's an arcane argument that is not going to ultimately decide this election.

I think the idea of whether this is a tax credit or a rebate or a extra earned income tax credit or a giveaway —

HUME: Or a handout.

KONDRACKE: Or a handout, it is not welfare because the people who get it are only those who are already employed, and it's not socialism because socialism means that the government controls the economy, which this is not.

So, you know, I think that — I don't think it's going to decide the election.

HUME: Let me see if I can state it correctly. Under the Obama tax plan, a great many people who pay no income taxes, although they may pay other taxes, would get money from the government?


HUME: It's called a tax credit or something.


HUME: It is, in fact, however, in the form of money that is either borrowed and added to the deficit or taxed away from other taxpayers who would have additional taxes to pay. Is that a fair statement?

KONDRACKE: Yes. Look, the tax code is riddled with goodies for various groups of all kinds. Warren Buffett famously says —

HUME: How many people actually get money in their pockets outside this group who don't actually pay taxes?

KONDRACKE: It is called the refundable tax credit.

HUME: I know what it is called.

KONDRACKE: And John McCain is in favor of one in the healthcare system.

JEFF BIRNBAUM, MANAGING EDITOR DIGITAL, THE WASHINGTON TIMES: I actually disagree, Mort. I don't disagree that this may not turn the election one way or the other, but I think if it were more clearly stated by McCain that it could have a grander effect.

I think he does have to use the word "welfare," even though technically that's not correct because the people who would receive this money are working people. but nonetheless, it has the same effect —

HUME: Wait a minute. It can't be welfare if you have a job?

BIRNBAUM: That's — technically that's the case.

But it is a handout, as you have suggested, that would be an excellent word, or "welfare."

HUME: A subsidy.

BIRNBAUM: A subsidy, a payment from the federal government to average folks, and as part of a broader tax policy that is redistributed, or to spread the wealth around, as Obama himself pointed out.

I think the argument that Obama is a straight down the line liberal when it comes to taxation and would redistribute the wealth and hand out more welfare checks, if it were stated that flatly by the McCain folks, could actually have broader impact than he is now having.

Talking about refundable tax credits —

HUME: He is simply saying that people who don't pay taxes are going to get money back through a supposed tax credit, which isn't really a welfare program.

BIRNBAUM: He's explaining it more than he needs to. I think if he were more direct he would have more of an impact, and it could move things(ph) at least a little bit.

CHARLES KRAUTHAMMER, SYNDICATED COLUMNIST: The issue could be, maybe arcane, but it is a true intellectual fraud, linguistic fraud.

Look, if the government were to send everybody who works in America except the top five percent a check on their birthday, it would be the exact equivalent of this so-called rebate, except that the checks would arrive staggered rather than all on one day.

It is a handout. It has nothing to do with taxation. The only thing it has to do with taxation is for those Americans who are paying income tax. Instead of the government mailing you a check and you mailing it back with the other owed taxes, the government saves on the postage and takes it off your income tax.

For the 40 percent who pay no income tax, it is a check in the mail and the government pays postage.

Democrats tried this in 1972, but McGovern offered a demo grant and it was laughed out of the political arena because it was ridiculous. The Democrats have learned you don't call it a "grant." You call it a "tax rebate" and you sell it as a tax cut, which it is not.

Remember, Democrats never spend any more. They always invest. And if they aren't investing, that spending is called a tax cut. That's how it works. It's worked, and Obama has cashed in on this brilliantly.

HUME: But part of it here is the language of budget-speak in Washington. Something is called "refundable." I always thought in order for something to be a refund you had to fund in the first place to get refund, or if had a rebate, you had to bate in the first place, or pay up in the first place.

Under this system you get something refundable when you never funded it in the first place. It works out pretty well for those who use the language, doesn't it Mort?


But this is sounding like a Washington argument, the way McCain is expressing it. And I don't think it is making any difference to people who have seen their wages flat for the last ten years or more and have higher health costs and education costs. It's a gift to them — yes, it is.

HUME: All right.

Coming up next, do Democrats have something against people with blue collars and rednecks? We'll talk about that next.



GOV. SARAH PALIN, (R-AK) VICE PRESIDENTIAL CANDIDATE: Just the other day in New Mexico I saw a sign that said "Ed the dairyman." And at a rally for Senator McCain in Virginia, there was a man named Tito Munoz who owns a small construction business. We can call him "Tito the builder."

And here in this crowd I saw some great placards already. We have "Ann the engineer," we have "Dave the cop."


HUME: And the McCain-Palin campaign would like you to believe that the Democrats look down their noses at such people and just don't like them. They, the mainstream media, didn't like her. They didn't like Joe the plumber, and they don't like the rest of these people.

It is interesting that this has come up in this phase of the campaign. Charles, what do you think about all that?

KRAUTHAMMER: Well, I'm Charles the psychiatrist. Unlike Joe the plumber, I actually have a license, but I don't do home repairs, at least not anymore, or any other kind of repairs.

I think this is an amazing phenomenon. When this election is remembered in a couple of years, I think the only thing people will remember will be Joe the plumber, the same way we remember at the last campaign he was against the war before he was for it.

And it's the one resonating issue.

HUME: He was for the war before he was against it?

KRAUTHAMMER: Well, either way — exactly.

But I'm not sure it's going to have a political impact. I think the idea is to try to paint Obama as an elitist. But that was tried successfully a couple of months ago when McCain had that ad about Obama in Berlin, he had him at as a celebrity, and that really worked.

But Obama is really smart. He understood it was a weakness. He understood he had been up there, highfalutin, and he said the stuff about guns and god and religion. He understood it was a weakness, and then he consciously shaped himself.

If you remember his speech in Denver — it was a pedestrian state of the union address. It could have been a soaring speech. It wasn't.

Do you remember the introductory video? It had him as a child. It had him in grade school, in high school, and then all of a sudden he is a community organizer. You never heard about Columbia or Harvard or Law School or the Harvard Law Review.

In fact, the only reference was that as a community organizer in Chicago he had to pay off his student debts as a way to make him like you and me.

He has made himself ordinary and common in a brilliant way, and I think it has worked. That's why this second attempt of attacking him as a celebrity out of touch doesn't work. You only get one shot in the campaign, and Obama fended it off a couple of months ago.

HUME: But what about the comments, though, you had from Jack Murtha, a prominent Democrat, calling his own constituents first racist and then later, at least, former rednecks. Does that feed into this in any way, Jeff?

BIRNBAUM: I think so.

HUME: You have McCain in Pennsylvania today, where he is supposedly about 11 points down.

BIRNBAUM: He thinks that there is a lot of room to grow in Pennsylvania and is putting a lot of money there.

In part — and I want to just disagree a little bit with Charles here — I think we may are remember Joe the plumber, but even more we will remember Sarah Palin from this campaign. And it is her attractiveness on the campaign trail that is allowing McCain to make a blue collar pitch, I think.

I think it's her instincts to extend the brand, if you will, as we just saw her do, of Joe the plumber, and her ability to touch blue collar workers and small business owners, something that McCain wasn't quite able to do. He was much more able to do that with her by his side.

And I think that they are making some inroads against a very formidable argument by the Obama folks that, in fact, he is not an elitist. He does not come from an elite background. That will be made more clear, I think, over the next couple of days when he is visiting his grandmother in Hawaii, someone who is not a rich person.

And one last thing — speaking as a native Scrantonian, I think it is quite clear that Obama's running mate, Joe Biden, also comes from blue collar roots. I certainly know from whence he comes.

HUME: But that's Northeast Pennsylvania, not Southwest Pennsylvania.

BIRNBAUM: Very good. That's correct.

KONDRACKE: Everyone wants to be a populist, everybody wants to be a friend of the workingman this year. And Sarah Palin does it very well. That's a good act she has. It's more than that. She comes from those roots.

I think it's time for John Murtha to think about retiring, actually.

But, on the main point to what this election will be remembered for, 760,000 jobs lost in the last nine months. That's what's going to be remembered about this election, and I think that gives Obama the advantage.

HUME: A lot of blue collar jobs, too.


HUME: That's it for the panel.

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