FTN 1/5/03

BOB SCHIEFFER, CBS News Chief Washington Correspondent: Today on Face the Nation, Senator John McCain and presidential candidate Howard Dean on North Korea, Iraq and politics.

Which is the bigger threat, North Korea or Iraq? Should President Bush go forward with another big set of tax cuts? And will the president be vulnerable in 2004?

These are the questions for Senator McCain, Republican of Arizona, member of the Armed Services Committee, and Governor Dean, Democrat of Vermont who's running for president.

Gloria Borger will be here, and I'll have a final word on a radical new way for reporters to cover politics.

But first, McCain and Dean on Face the Nation.

ANNOUNCER: Face the Nation, with CBS News Chief Washington Correspondent Bob Schieffer.

And now from CBS News in Washington, Bob Schieffer.

SCHIEFFER: And good morning again. Senator McCain is in the studio this morning. We begin with him.

Senator, as you well know, the president unveils his plan to cut taxes on Tuesday. He calls it a plan to stimulate the economy.

One major component, we have been led to believe, is that he will propose cutting taxes on stock dividends 50 percent. That's what the talk has been all week, but this morning Time magazine says he is going to propose cutting those taxes completely on stock dividends.

Good idea, bad idea?

SEN. JOHN MCCAIN, R-AZ: I think probably it's a good idea to have some cuts in taxes on dividends. But I think it's important to recognize that the people that have kept our economy going are middle-income Americans. They're the ones who have been buying the houses and the cars and have kept this economy -- it's not the investor class, although we have more investors than ever before.

I also think it's very important that we give low-income Americans a break.

How do you do that? With a payroll tax holiday. They've been paying a larger percentage of their income in taxes, when you look at all the taxes they pay, than about any other group of Americans.

So I hope that there will be an addressing of the needs of all levels of American income in the tax-paying class of America.

SCHIEFFER: Well, then, Senator, are you saying that the president's plan, from what we know about it now, is tilted too much to the upper-income groups?

MCCAIN: I haven't seen enough of the details. As you mentioned here, they're doing what all administrations do and that's float a balloon, see how it goes. And I don't disagree with that tactic, but I'd like to see it first.

I thought the last round of tax cuts was way too tilted. By the way, one of the things we could do to get more money for tax relief to lower-income Americans would be to put a cap of $4 million or $5 million on the estate taxes. I don't see why Bill Gates shouldn't pay an estate tax.

SCHIEFFER: What you're saying is that the president needs to do more than you've heard of so far for people at the lower end.

MCCAIN: Middle-and lower-income brackets, yes.

SCHIEFFER: And you propose to do that with a payroll tax?

MCCAIN: Among others, yes. Among others. Cap the estate tax, a payroll tax holiday, probably education tax credit, child tax credits. There's a whole lot of ways you can help middle-income and lower-income Americans.

GLORIA BORGER, U.S. News & World Report: But he's also talking about speeding up the cuts in tax rates at all levels, including the wealthiest, but also middle-income and lower-income. Would you do it for the wealthiest, or not in this round?

MCCAIN: You know, Gloria, it's hard because some have said make them permanent, accelerate them. You know, how does that mesh with this new tax proposal? I'd have to look at it.

But again, the reason why I opposed the last round was because of what I felt was a disproportionate favoring of the wealthiest 1 percent, 10 percent of Americans. If that's continued, obviously, then I wouldn't support that.

BORGER: Can we switch to foreign policy for just a moment?

MCCAIN: Sure.

BORGER: South Korea yesterday came up with kind of a plan to try and extricate the United States from the situation it's in now with North Korea. And they said, "We'll have President Bush write a letter to North Korea saying that he's not going to attack." And in exchange for that, then North Korea would stop its production of nuclear weapons.

Do you think this is a good idea?

MCCAIN: Well, I think it might be a nice idea, but it will be of zero effect. We're facing a dire threat to the United States' national security and that of our allies.

I think we ought to understand the parameters of this crisis. They have developed nuclear weapons with the capability to deliver them to Tokyo, are progressing towards weapons that can be, and missiles that can deliver the weapons to the United States of America. This is of the most serious consequences.

And the United States cannot go, through any letter or anything else, go back to the status quo. You agree to go back to the status quo, then you are giving the North Koreans the same ability that we gave them in 1994, an agreement which many of us vociferously opposed, the ability to continue to develop those weapons.

BORGER: So what do you do?

MCCAIN: Well, first of all, I think you make it very clear that it's unacceptable. Two, we will not negotiate. Three, the Chinese, in particular, but also the Russians, the South Koreans and the Japanese can play a very key role -- the Chinese in particular, who have been less than helpful so far.

One of the options that we have is, of course, is to remove our objections to Japan developing nuclear weapons, since they are now directly threatened by North Korea. I'm sure the Chinese would not like to see that happen.

Also, I hope over time the Chinese recognize a nuclear-arsenal-armed North Korea is not in their interests either.

SCHIEFFER: I want to make sure I understood what you said. You're saying we should now tell the Japanese that they have the right to develop nuclear weapons because North Korea has developed them.

MCCAIN: Yes. And has the capability of delivering a nuclear weapon that would hit Tokyo, and that in the event of the Chinese to exercise every bit of their influence to bring North Korea back to reality.

We're talking about a country that's governed by a sociopath. And by the way, we could go after his estimated $4 billion that he has around the world. We could go after him directly.

But we are facing a nation that is Orwellian, a most oppressive nation in the world, which we've been propping up indirectly by our hundreds of millions of dollars of oil and food support. By the way, that is in direct contradiction with what the United States is supposed to be all about.

Now, if you allow the North Koreans to gain some sort of leverage or agreement that would be beneficial to them, that will be a lesson to all other nations: Do the same thing.

So there's a great deal at stake here. We have to address it directly.
And I'd just like to mention one other thing. The argument will be, "Well, now, you have to leave Iraq alone." Iraq is an object lesson where we have to address Iraq and the situation in Iraq before they reach the stage where North Korea is.

So this is an argument for -- what the North Koreans have done in violating these agreements and developing -- on the road to developing an arsenal -- by the way, an arsenal is far more dangerous than one or two weapons -- it is an object lesson that we cannot allow Iraq to acquire that same capability, because the situation in North Korea is far more complicated than it was in 1994.

BORGER: What are our military options regarding North Korea, and should they remain on the table?

MCCAIN: We should never abandon the military option when we are facing a direct threat to the United States of America.

It is, however, the absolute last, last resort. But to take it off the table...

BORGER: What is it? What are we talking about?

MCCAIN: Well, there are a variety of options. First, by the way, an economic embargo enforced by the Chinese, Japanese, South Koreans and the United States is the best option.

There is a series of military options that we have, including selective surgical strikes, such as were advocated by people like Brent Scowcroft in 1994.

And yes, I recognize the North Korean artillery on the DMZ. I recognize that they have this missile capability. But a few years from now, if they develop this arsenal, then they have a variety of options which they don't have today.

So it's the absolute last, last option, but to remove it as an option, I think, would not do justice to the seriousness of the threat.

SCHIEFFER: Senator, as you well know, Colin Powell, the president, have both said this is not yet a crisis, that it's something to be dealt with diplomatically.

MCCAIN: It is a crisis.

SCHIEFFER: Who poses the greater threat to the United States at this point, North Korea or Iraq?

MCCAIN: I think they both pose great threats. The potential that Iraq has, if we don't stop what they're doing, is equally as dangerous as what the North Koreans have. The North Koreans are more limited in their military capability, even though Iraq's is quite weak.

It's hard for me to compare the two, but I don't think that you can -- that you have to abandon our efforts to restrain Iraq from acquiring the position that North Korea has attained.

SCHIEFFER: Well, let's just, as an example, let's talk about the worst-case scenario. Let's suppose that we do go into Iraq, and while we're there, the North Koreans decide to drop some of those artillery shells or fire some bombs into Seoul.

Can we handle both those situations at once?

MCCAIN: With difficulty, with great difficulty, we can. Under no circumstances should the North Korean crisis be a reason for not continuing to address the potential threat that Saddam Hussein poses to the United States' national security interests.

SCHIEFFER: Do you think war in Iraq is inevitable now?

MCCAIN: I think it becomes more and more likely every day. I agree that the president's saying it's a last option, and he hasn't made the decision yet, and I think that's entirely appropriate. But we are seeing the United States assuming a military posture, which makes it likely that we will act. We'll know in a few weeks, as we all know.

SCHIEFFER: Senator McCain, I want to thank you for being with us. Thanks so much.

MCCAIN: Thank you.

SCHIEFFER: When we come back, we'll talk a little politics with Governor Howard Dean, in a minute.

(COMMERCIAL BREAK)

SCHIEFFER: And now from Burlington, Vermont, Governor Howard Dean.

Governor, I believe you were the first of the Democrats to say that you would seek the presidential nomination this year.

This is your second appearance on Face the Nation. We hope to have you back again, as well as all of the other candidates who are seeking the nomination.

Let's start right in on some specifics. You just heard what Senator McCain said. He said we should tell the Japanese that they should start a nuclear weapons program of their own because North Korea now poses a threat to them. What would be your response to that?

GOV. HOWARD DEAN, D-VT: Well, first of all, let me say that I admire Senator McCain greatly. And he's one of the people we model our campaign on because he is very direct, very blunt and nobody has to guess at what he is thinking, which, I think, is people would like to see a lot more of that in politicians around this country.

I do not come to the same conclusion that Senator McCain does about the Japanese. I believe that North Korea is a crisis. There is a real problem there. I believe it actually represents a greater danger to the United States than Iraq does, because there's no evidence at this point that Iraq possesses nuclear weapons or is about to develop them, which is one of the reasons that would I not have supported the president's resolution on Iraq, which sets me apart from all the other people running for the Democratic nomination.

But I do not think that we ought to encourage any nation to develop nuclear arms. I think that nuclear proliferation is a very serious problem. We need to use all the economic, political and diplomatic muscle we possibly can to stop the North Koreans from developing programs like that. I would draw the line at trying to encourage additional countries to develop nuclear weapons.

SCHIEFFER: All right, well, let me ask you about the proposal that apparently South Korea is going to put forth now, and it basically is this. They would like to see a letter from the United States, written assurance from the United States, that they will not attack North Korea.

And they believe if they can take that kind of letter to North Korea, or present that to the North Koreans, then the North Koreans would desist in starting up this nuclear production again.

Do you favor that? Do you think that would work?

DEAN: Well, I think the -- I concur with most the president's policy on North Korea. We have substantial differences on Iraq. But I like the idea and I believe in the idea of multilaterals and the president's pursuing a policy in cooperation with the Chinese, the Russians, the South Koreans and the Japanese, which we ought to see bear fruition.

The one criticism I have of the president's policy is that we have to directly negotiate with the North Koreans. This idea that the South Koreans are putting forward may be a good idea and it may not. We're not going to know that until we have direct conversations with the North Koreans about whether such a deal would make any sense at all.

And I concur with Senator McCain. Right now, as the South Koreans propose it, it's wishful thinking. We're only going to know if that's going to work if we have direct discussions with the North Koreans. And that's the one problem in this president's policy.

BORGER: Well, if we have direct discussions with the North Koreans, would you then argue that we should have direct discussions with Saddam Hussein?

DEAN: I do not believe the president has made the case to send American kids and grandkids to die in Iraq. And until he does that, I don't think we ought to be going into Iraq.

So I think the two situations are fairly different. Iraq does not possess nuclear weapons. The best intelligence that anybody can find, certainly that I can find, is that it will be at least a year before he does so and maybe five years.

So I think putting enormous pressure on Iraq is a good thing, because we can't permit them ever to develop nuclear weapons. But I think we have a much more serious and immediate crisis with North Korea.

BORGER: But would you negotiate with Saddam if you would negotiate with North Korea?

DEAN: I would do exactly what we're doing with Saddam. I would leave it to the United Nations. Saddam has a long history of having his word be absolutely no good whatsoever. Now, the North Koreans have not exactly distinguished themselves in their level of honesty, either.

But for the United States to negotiate directly with Saddam Hussein, I suspect, is a waste of time. I'd leave that to the United Nations, leave it to the community of nations, not simply the United States, to police what's going on in Iraq.

SCHIEFFER: Let's talk a little domestic politics. The president unveils his tax proposals on Tuesday. We're told they're going to be some incentives for business. He'll ask for an extension to speed up the long-term tax cuts that he proposed last year, or the year before last.

And now we're told that me may propose eliminating the tax on stock dividends entirely. Do you think that is a good idea?

DEAN: Well, you know, it's interesting, I saw the president complain that the Democrats were talking about class warfare. But I really think it's the president that's practicing class warfare, because all of his tax cuts are aimed at the class of people that don't need that kind of help.

And there's very little relief for middle-class people and working people in any of the president's tax legislation, including what I read that he's now about to propose.

The problem with the elimination of the tax on dividends, which in and of itself is not a bad idea, but the problem is, first of all, half of all stocks in this country that pay dividends are held in 401(k)s and retirement plans which are not subject to tax anyway. And those are the stocks that are held by middle-class people.

The people who live on the dividends, by and large, are people who are in the upper-income brackets, which are always the folks that get favored when the president has any kind of tax proposal whatsoever. So I would not start with double taxation of dividends.

I think Senator McCain's exactly right. The last tax cut was skewed toward the upper regions of income. It did not help the economy at all. It looks like this tax cut's going to be doing the same.

There's a more important part of this argument. The president wants to now -- we need to take on North Korea. He wants to make war in Iraq. We have not even talked about Al Qaida, which is the most serious threat of the three to the American people.

How is the president going to pay for this if he keeps running up enormous deficits? We haven't heard anything about that.

BORGER: Well, Senator McCain here talked about a payroll tax holiday as one way to give tax relief to middle-income people in this country. Is that something that you would support?

DEAN: Let me tell you what I think the best possible economic relief to middle-class people, small-business people and working people are in this country. I want health insurance for every American. I want to do it by subsidizing people who work for themselves, small businesses and working people to help them buy health insurance.

If you could help people with their health insurance, that affects 40 million people directly and nearly every small business in the country. Why not do that instead of running up these enormous deficits with tax cuts that don't help average Americans?

SCHIEFFER: Well, Governor, speaking of costs, if you had a national health care program, wouldn't the cost of that be enormous?

DEAN: It actually would not. The cost is about half of the president's tax cut that he passed last time, and the benefit goes to working people and middle-class people.

Furthermore, it would actually reduce insurance premiums for most Americans, because the reason your insurance premiums are so high is because of the enormous cost shift. When you go to the emergency room, you get care, and then the bill gets sent to somebody else, one of the insurance companies. We all pay that in our premiums. If you can't pay for your own care, somebody else has to pay for it, and that's us.

That alone would be the single biggest stimulus to the economy, particularly to small businesses, that you could possibly think of.

BORGER: Well, Governor, you are also a doctor. And as long as we're talking about insurance, I want to ask about something that happened in West Virginia last week, which is that all the surgeons walked out because they were protesting these high malpractice insurance rates.

What would you do about that problem?

DEAN: Well, actually, I think that's a problem for the legislature in West Virginia to deal with. In Vermont, we don't have a problem like that. In some states there's a very severe problem.

What happened in Mississippi, where they had one of the worst problems, is that the legislature enacted tort reform. And I don't see that as a federal problem. I see that as a state problem.

So, I think it's up to the governor of West Virginia and the governor of Pennsylvania, which are two states that have a very serious problem, to enact the necessary reforms needed for their states. But I don't think this is a nationwide problem.

BORGER: Well, generally, do you think malpractice awards should be capped at some particular level?

DEAN: I think that depends on the state. In our state, we don't have a problem with runaway juries. It would not be appropriate. It might be appropriate in other states, and I think each state has to figure that out for themselves.

BORGER: Well, the president's also working up a plan for prescription drug benefits, but he's going to make it part of a revamping of the entire Medicare system and he wants to do it in a way that promotes competition. Is that something you could buy into?

DEAN: It won't work. We tried that here. The truth is -- and I'm not a single-payer person, and my health care reform simply relies on expanding the existing systems, Medicaid, Medicare and the employer-based system.

But the truth is that the private sector does not run health care plans as cheaply as the public sector. That's just the truth. I know that Republicans have made their political careers beating up on government, but one thing that government does is run health care plans more efficiently.

So, I'm not in favor of privatizing Medicare which seems to be what the president is suggesting. I think he ought to lay off that stuff, because I think it's going to hurt a lot of seniors.

SCHIEFFER: All right. Governor, we want to thank you very much. Our new year's resolution is to get as many candidates on this year as we possibly can and to get specific on what they're for and what they're against. I think we got a good start with you this morning.

I want to thank you very much.

DEAN: Thanks, Bob.

SCHIEFFER: We'll be back in a minute with a final word.

DEAN: And thanks, Gloria.

BORGER: Thanks.

(COMMERCIAL BREAK)

SCHIEFFER: Finally today, we have sort of a sad announcement to make, sad for us, but we're happy for her. This marks Gloria Borger's last broadcast on Face the Nation.

She's been here for the last six years or so, has had a great deal to do with whatever success we have had on this broadcast.

BORGER: Thank you.

SCHIEFFER: But she has a fine opportunity now. She's going to CNBC.
Gloria, tell us about what you're going to be doing.

BORGER: Well, I'm going to be the co-host of a show called "Capital Report" on CNBC, which is a show about the intersection of business and politics and the economy.

So it's going to be a lot of fun, but, Bob, I just can't let the moment pass without thanking you and everybody at CBS for making me a part of this show. It has been a privilege to sit next to you here every week and to work with all of the pros that put out this terrific broadcast every single Sunday.

I'm going to miss you, and I can't thank you enough.

SCHIEFFER: Well, it's been a pleasure to have you. You're always welcome back. You've done a great job for us, and I know you'll do very well over at CNBC.

BORGER: Thanks.

SCHIEFFER: So, thank you very much, Gloria.

Finally today, on another subject, I was watching CNN the other day, when North Carolina Senator John Edwards made his announcement that he'll run for president. As these things go, it was a perfectly fine announcement. He talked about fighting for regular people, about the economy, about trouble overseas.

But the first question he got from reporters was not about any of that. It was this: How much money have you raised?

That's what we've come to in politics. Money has become such an overpowering factor that even the reporters are caught up in the money game. Who's got the most? Who's best at raising it?

Sadly, money questions are pertinent, because nine times out of ten, the candidate with the most money wins, because that's the candidate who can buy the most TV commercials. Even sadder, those commercials are where millions of Americans get most of what they know about politics.

After railing for years about money and politics, I've decided on a radical new course. I know it's radical, but what if those of us who cover politics paid less attention to who can raise the most money and paid more attention to what these candidates are saying, more attention to the programs they propose and what impact, if any, these programs will have on our lives? Even more radical, what if we tried to find out the candidates' views on foreign policy?

Who knows? If we did a good job at that, if we gave voters enough solid information, maybe they wouldn't have to depend on those commercials to find out about politics. If that happened, the politicians would stop buying those commercials, and the rest of us wouldn't have to listen to them. Now, tell me that's not a good deal.

That's it for us. We'll see you next week right here on Face the Nation.