This is a rush transcript of "Special Report With Brit Hume" from May 26, 2008. This copy may not be in its final form and may be updated.


SEN. JOHN MCCAIN, PRESIDENTIAL CANDIDATE: I take a backseat to no one in my affection, respect and, devotion to veterans.

Our Bill has a sliding scale that offers generous benefits to all veterans but increases those veterans' benefits according to the veterans' length of service. It is important to do that, because otherwise we will encourage more people to leave the military after they have completed one enlistment.

One study estimates that Senator Webb's Bill will reduce retention rates by 16 percent.


BRET BAIER, GUEST HOST: There is Senator John McCain today talking, among other things, about the G.I. Bill. He has his own version that he has put forward with a number of other senators, but the one that has passed the Senate is from Senator Jim Webb of Virginia.

What about the politics of this and how it is playing on the campaign trail? Some analytical observations from Mort Kondracke, executive editor of Roll Call, Jeff Birnbaum, columnist at The Washington Post, and Bill Kristol, editor of The Weekly Standard--FOX News contributors all.

Mort, we'll start with you. There are two different bills, the one that passed the Senate was Senator Webb's Bill, and that is the one that essentially McCain is getting hammered on. How is this playing out?

MORT KONDRACKE, EXECUTIVE EDITOR, ROLL CALL: Well, 75-22 was the vote. He is in a very small minority.

I think he's right on the merits. Why you would not have transferability, giving service people the option the option of transferring their education benefits to their spouses or their children, and rewarding people who stay in longer, I cannot understand.

BAIER: That's not in Senator Webb's Bill.

KONDRACKE: That is not in Senator Webb's Bill, it is in the McCain Bill.

It makes imminent good sense to me, anyway. And the next president whoever it is, is going to want a first rate military with retention of experienced NCOs. You don't want people leaving after one enlistment.

I think that Obama is crazy to be in favor of the Webb Bill if he plans to be president of the United States, but he is in favor of the Webb Bill.

So what is amazing is the vitriolic tone that this campaign has already taken over this Bill. McCain is saying Obama knows next to nothing about this, or knows less than nothing about this whole subject, and is attacking him for not having served in the military. And Obama is coming back saying that he is engaging in vicious personal attacks.

This is getting tough right from the get-go.

BAIER: Jeff, Senator Obama said I don't understand why John McCain would side with George Bush and oppose our plan to make college more affordable to our veterans. He continues to hammer on it, even yesterday.

JEFF BIRNBAUM, COLUMNIST, WASHINGTON POST: Well, this was, I think McCain walked right into it, basically, walked into the Memorial Day weekend, essentially, without adequately explaining his position.

He was not around for the vote in the Senate, unlike Clinton and Obama, who were in Washington. And they had more cameras around them than on the Senate floor to use to explain, and McCain was out on the campaign trail and was at a disadvantage.

I agree with Mort that this position is completely defensible. Why give somebody who has served one tour of duty the same amount of G.I benefit as someone who served two or three? Shouldn't there be an incentive to keep people in the military longer? Isn't that the idea of a volunteer military?

In any case, because McCain lost that time, he is being hammered. And the vitriol is actually, I think, a separate issue. That's something we're going to see all the time from McCain to Obama on the national security issue. It will be one of the most important issues and disagreements between the two.

BAIER: Bill, to see some of the coverage of this, you would not know there were two plans out there. The New York Times had an editorial today saying this: "Having saddled the military with a botched, unwinnable war, having squandered soldier's lives and failed them in so many ways, the commander in chief now resists giving troops a chance at better futures out of uniform.

He does this on the ground that the Bill is too generous and may discourage reenlistment, further weakening the military he has done so much to break."

They go on to tie John McCain to all of that--no mention of the second McCain Bill.

BILL KRISTOL, EDITOR, THE WEEKLY STANDARD: It's pretty remarkable. The New York Times had an excellent op-ed page on Monday. It is ridiculous, but sometimes the editorials, I don't quite agree with them.

They make it seem as Bush and McCain are these flinty-hearted, horrible people who want to deny our veterans any benefits when, in fact, there is an alternative Bill that the administration supports, that John McCain and Lindsay Graham have introduced that I think in many ways is superior on the merits. But it is amazing that the editorial doesn't even acknowledge that there is an alternative bill with an alternative argument. Senator Reid, the majority leader, did not allow a vote on the Republican Bill. He used various parliamentary maneuvers to get the up and down vote only on the Jim Webb Bill.

So the liberal media and Democratic leadership of the Senate are making it tough for John McCain and tough for the Bush administration. They have to fight back.

BAIER: Is John McCain losing the politics here?

KRISTOL: Maybe for now, but he has plenty of time to fight back. McCain's Bill has transferability to wives and spouses. The Webb Bill doesn't.

Let some group put up a TV ad with a spouse saying why do the Democrats not want me to use the education benefits of my husband who is fighting in Iraq so I can get a better education and help support the family. They can play hardball, too.

BAIER: And the White House recently put a statement out about that "New York Times" editorial today saying there was another alternative. Last word on this subject when we come back.

When we come back, what, if anything, will come from the hours of testimony by big oil executives last week. Is there anything to be done to address rising gasoline prices? That's next.



REP. MAXINE WATERS, D-CALIF.: What guarantees are you going to give this liberal about how that will reduce the cost of gasoline at the pump if we let you drill where you say you want to drill?

JOHN HOFMEISTER, SHELL OIL PRESIDENT: I can guarantee to the American people because of the inaction of the United States Congress ever increasing prices unless the demand comes down, and the $5 will look like a very low price in the years to come if we are prohibited from finding new reserves, new opportunities to increase supplies.

WATERS: And guess what this liberal will be all about? Thios liberal will be about socializing--would be about, basically, taking over and the government running all of your companies.


BAIER: Democrat Maxine Waters there looking for the word "nationalize," we believe, with a back and forth with the president of Shell Oil in the one of many hours of testimony by big oil executives last week on Capitol Hill.

What came out of it? Where does it go from here? What's possible?

We're back with our panel. Jeff, what possibly can Congress do to affect oil prices?

BIRNBAUM: Well, there are a lot of things they can do. They can not fill up the strategic petroleum reserve by as much, or withdraw some of the oil that's in strategic petroleum reserve.

They can fiddle with taxes of various kinds and impose a windfall profits tax on oil companies, though it is hard to see how that will effect the amount of oil that is being drilled or refined.

We heard from the campaign trail the proposals for a campaign trail for a holiday of federal gas taxes. There is also allowing, just as the Shell Oil executive there described, allowing more drilling on government land, which is what the oil companies really want.

And a variety of incentives for renewable energy sources from wind to ethanol--ethanol already is heavily subsidized, all of these things.

BAIER: how much is reality, though?

KONDRACKE: Most of the things you can do in the short run won't make much difference. Not filling the strategic petroleum reserve or having the gas tax holiday is pittances, right.

This is fundamentally a supply and demand problem. And the Federal Trade Commission has investigated this over and over again and has never found any evidence of price gouging by the oil companies.

The International Energy association, or whatever it's called, the agency had a report that "The Wall Street Journal" played on the front page last week that everybody's got to pay attention to. The ability of the producers, the producing countries, to produce oil is flattening oil, and the demand for it is going through the roof.

That means that the price of oil is going to get more and more expensive, and the only way to bring it down is to do stuff like that oil company executive said--drill offshore, drill in ANWAR, go to nuclear energy, add more gas refineries.

You have to increase the supply somehow, and we have to do it domestically.

BAIER: So what was last week about then? Was last week more about Congressmen and women really wanting to show their constituents that they are just as angry as they are at the pump, or what was it about, Bill?

KRISTOL: I have a complaint. I went to the Washington Nationals baseball game this afternoon and paid $7.50 for a Budweiser. I think we should nationalize the concession stands at baseball parks. And I would like Maxine Waters to get on top of that right now.

Of course it is about scape-goating. No one likes paying high gas prices. The liberals can blame this on the oil companies and the Bush administration, which is in cahoots with the oil companies.

I think Republicans, conservatives, and people who believe that the oil companies are not gouging need to take this one on head-on and say why is the Congress stopping us from finding more oil? It won't solve everything overnight, but it would help to increase supply.

And there is a lot of oil out there in deep sea waters, in Alaska, in oil shale, which environmental regulations are making it harder to get. And I think this is a debate that conservatives and free markets can't shy away from. They need to take on.

BAIER: Standing by oil companies is a tough think politically, isn't if Jeff.

BIRNBAUM: Actually, you want to step away from oil companies. You are likely to be run over by Democrats running to cameras.

What is needed here is an understanding that the oil companies are not really to blame. Now, maybe they are somewhat, clearly. But there is a world market out there that has really run amok that will prevent any short-term solutions from bringing down the price of gasoline.

KRISTOL: What are the biggest oil companies in the world? None of them is American. They are government owned, mostly Middle Eastern. They control the price of oil much more than these American companies.

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