Return to Transcripts main page

THE SITUATION ROOM

John McCain has Mole-Like Growth Removed; Issues Affecting Your Pocket; Breaking America's Budget: Deficit Estimate Soars to New Record

Aired July 28, 2008 - 16:00   ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.


WOLF BLITZER, CNN ANCHOR: Happening now, John McCain has a growth removed from near his temple. What, if anything, does it mean for the skin cancer survivor's health or for his campaign against Barack Obama?
We're going to tell what you Senator McCain, his doctors are saying. Stand by for that.

Plus, 100 days until America votes. Why the race for the White House could dramatically change in the weeks and months to come.

And the federal budget hemorrhaging red ink. An eye-popping new estimate drives home America's economic troubles. This hour, top advisers to the two presidential candidates, they'll face off here on the deficit dilemma.

I'm Wolf Blitzer. You're in THE SITUATION ROOM.

John McCain tries to reassure anyone worried about his health today, the skin cancer survivor had a mole-like growth removed from his face near his temple. The campaign says it was part of McCain's routine checkup, but there's no reason to worry. But within the last hour, McCain says doctors are checking the growth out, doing a biopsy, just to make sure everything is fine.

Let's get some more information, let's discuss with our own Dana Bash. She's covering this campaign. Also our senior political analyst, Gloria Borger, she's here in THE SITUATION ROOM as well.

All right, Dana, what do we know exactly what the senator said today, how he's explaining what's going on?

DANA BASH, CNN CONGRESSIONAL CORRESPONDENT: Well, what we know is that he went to the doctor and he had a mole-like substance basically removed from his right temple. Now, that is the opposite side from where he had melanoma and his major surgery. That was on his left side.

Now, this, he said, came just out of a routine checkup with his dermatologist, and he talked about that with the reporters just a short while ago. Listen.

(BEGIN VIDEO CLIP)

SEN. JOHN MCCAIN (R-AZ), PRESIDENTIAL CANDIDATE: As I do every three months, visited my dermatologist this morning. She said that I was doing fine, took a small, little knick from my cheek, as she does regularly, and that will be -- and will be biopsied just to make sure that everything is fine. But I want to again urge all Americans to wear sunscreen, particularly this summer, stay out of the sun as much as possible. Wear sunscreen, and if you ever have any slight discoloration, please go to your dermatologist or your doctor, and get it checked up on.

Melanoma is a preventable occurrence. It really is. It's one of the most preventable occurrences. But remember, a lot of the damage that people receive from the sun when they're young sometimes comes back later in life.

And that's the end of my lecture from the American Dermatology Association today.

Thank you all very much. Thank you.

QUESTION: Senator, your doctor was confident that there was nothing major?

MCCAIN: Absolutely.

(END VIDEO CLIP)

BASH: Now, Wolf, Senator McCain's aides are downplaying this, just as you heard Senator McCain do right there. They are saying that they're going to give us the results of the biopsy when it comes back.

Obviously, everybody hopes that this is just routine, that there is nothing going on here, but, you know, the reality is this is a reminder that Senator McCain is a cancer survivor. We do know that his doctors, a couple of months ago, gave him a completely clean bill of health, but it also is a reminder that he is a 71, almost 72-year- old man, and could be the oldest person ever elected. And that is something that we know that voters have concerns about.

BLITZER: And of course we hope it's nothing, this little growth, on the other side of his face. And as you noted, just a couple of months ago, Dr. Sanjay Gupta, among others, went to Arizona, reviewed all of his medical records, and got a very nice clean bill of health for him, so we hope this is nothing as well.

Gloria is here.

Let's talk a little bit about Senator Obama, Gloria. He met with top economic advisers today.

GLORIA BORGER, CNN SR. POLITICAL ANALYST: He had a little pain in his hip yesterday. Remember that, Wolf?

BLITZER: Yes. But, you know, nobody paid much attention to that. He's only 46 years old, I guess. That's the difference.

But he had Robert Rubin and Warren Buffett, and all sorts of major heavyweights at this meeting he had today, and he also said this -- I'll play a little clip.

(BEGIN VIDEO CLIP)

SEN. BARACK OBAMA (D-IL), PRESIDENTIAL CANDIDATE: And this is an emergency that you feel not only just from reading "The Wall Street Journal," but from traveling across Ohio and Michigan, in New Mexico and Nevada, where you meet people day after day who are one foreclosure notice or one illness or one pink slip away from economic disaster.

(END VIDEO CLIP)

BLITZER: All right. He didn't waste any time. He was doing all foreign policy last week in Iraq and Afghanistan and Europe. He immediately got to what we call issue #1, the economy.

BORGER: Absolutely. I mean, he saw that his poll numbers did go up a bit, but he didn't get a tremendous bounce out of this. It's very clear that the economy is the issue that people are thinking about.

There's news today, Wolf, that the deficit could reach $490 billion next year. And that's going to play into the Obama's campaign sense that we need a change in the economic stewardship of this country, and you can't continue those tax cuts for the wealthy that he says George Bush has, and that John McCain would like to continue. So it's a talking point for him.

BLITZER: And McCain went to California today, and he's pushing hard for this offshore oil drilling in a state where the governor, Arnold Schwarzenegger, he doesn't like that idea. A lot of other Californians don't like it as well.

BASH: It is ironic that he made this point in the state of California, right, where the governor doesn't support it. But remember last week, when Barack Obama had all of these images from abroad, what McCain wanted to do and his advisers wanted to do was go to an oilrig off the coast of New Orleans. They had to scrap that for various reasons, so today he had another chance at that kind of imagery.

He went to an oilfield in Bakersfield, California, and he made the point that his campaign really thinks is a winning one. And that is that Barack Obama is opposed to this idea, and pretty much opposed to everything that Senator McCain says will help with the energy issue.

(BEGIN VIDEO CLIP)

MCCAIN: So, Senator Obama opposes offshore drilling. He opposes reprocessing of spent nuclear fuel. He opposes storage of spent nuclear fuel. And so he is the Dr. No of the -- America's energy future.

(END VIDEO CLIP) BASH: Dr. No, Senator No. There are different variations of that theme, but it is a theme, just like Gloria was saying, about Barack Obama. John McCain, his advisers, they are really eager to get back to this issue after there was a lot of talk...

BLITZER: Because the polls in part show that the American public, basically, about 70 percent, support this offshore oil drilling.

BASH: Exactly.

BLITZER: A much smaller number oppose it.

BASH: Exactly.

BORGER: It's also a way for him to distance himself from the president to a certain degree. He can say, look, I wouldn't have this kind of deficit. I would have cut out earmarks. I would run the economy in a different way from George W. Bush.

So it could work for McCain.

BLITZER: All right. We're going to talk a little bit more about that shortly.

But we hear today that Hillary Clinton is about to resume campaigning for Senator Obama.

BORGER: Yes. Yes, I was talking to somebody in the Obama campaign. They're very happy.

Later this week they're going to be releasing a schedule for her, Wolf, that she'll be campaigning in three or four battleground states for Barack Obama by herself in August. As for Bill Clinton, we still don't know what he's going to be doing and when he's going to be doing it.

BLITZER: Well, he says he'll do whatever the campaign asks him to do, and so far I guess they haven't called him to do much. We'll see what he does.

All right, guys. Stand by. We have much more to discuss.

By the way, Senator McCain is expected to talk about his health and other important issues tonight, when he's a guest on "LARRY KING LIVE." "LARRY KING LIVE" airs 9:00 p.m. Eastern, right here on CNN.

Let's go back to Jack Cafferty. He's had a couple days off.

We missed you, Jack. Let's get to "The Cafferty File."

JACK CAFFERTY, CNN ANCHOR: I was overseas, showing up my foreign policy credentials, but I'm back now.

BLITZER: Well, you have that credential. You don't need to show it. CAFFERTY: Barack Obama's overseas trip, it was almost flawless. It's the first time in eight years that an American politician was greeted so enthusiastically overseas. We saw foreign citizens waving American flags instead of burning them, or having the host countries' military holding back angry protesters.

And while Obama was away, shoring up his foreign policy credentials, it seems that the week turned out to be a bit of a devastating one for John McCain. McCain spent the week stumbling around the U.S., making one gaffe after another about foreign policy, which is supposed to be his strong suit.

We heard McCain refer to the nonexistent Iraq/Pakistan border. He got his timing wrong on the surge and the Sunni awakening against al Qaeda in Iraq. He called Iraq, "... the first major conflict since 9/11."

I guess Afghanistan doesn't count.

And are you ready for this? McCain acknowledged that 16 months for a U.S. troop withdrawal from Iraq is "... a pretty good timetable."

Go figure.

And of course, it's ironic that it was John McCain who kept urging Barack Obama to go overseas in the first place.

Obama did take some heat for canceling plans to visit wounded troops at the U.S. military base in Germany, and rightfully so. He probably should have gone.

Nevertheless, the polls are reflecting just how good a week it was for Barack Obama. CNN's Poll of Polls now shows Obama leading McCain by six, 45-39. The Gallup daily tracking poll shows Obama jumping ahead of McCain by nine points.

Here's the question: Did Barack Obama's overseas trip change your opinion of him?

Go to CNN.com/caffertyfile and post a comment on my blog.

It was not exactly a perfect game, but it was close.

BLITZER: Jack, thanks very much.

The Obama and McCain campaigns are seeing red over the federal deficit. We're going to break down the startling new estimate, what it means for all of us.

Plus, America's big decision now only 100 days away. Where the race stands right now and why it may change before Election Day.

And the candidates on the future of affirmative action. John McCain changes his stance. Barack Obama sees room for improvement.

Lots going on today, right here in THE SITUATION ROOM.

(COMMERCIAL BREAK)

BLITZER: It's a mind-boggling number. The White House now projects the federal budget deficit will swell to $482 billion in the next fiscal year. It's nearly half a trillion dollars. It equals roughly $1,500 for every person in the country.

It's a record amount of red ink, almost eight years after President Bush inherited a budget surplus from the Clinton administration. And there are very serious implications for the nation right now on this, the brink of electing a brand new president.

Let's go to our White House correspondent, Elaine Quijano. She's monitoring this story for us.

And it's certainly giving the Democrats a big opportunity to blast this outgoing Bush White House, but give us some perspective, Elaine, on what's going on.

ELAINE QUIJANO, CNN WHITE HOUSE CORRESPONDENT: Absolutely.

Well, Democrats, as you can imagine, Wolf, are taking aim, saying that this $482 billion deficit is a sign of the Bush administration's flawed economic policies, but the White House argues that figure simply reflects the price of boosting the economy.

(BEGIN VIDEOTAPE)

QUIJANO (voice over): Four hundred eighty-two billion dollars, that's how much the U.S. government is expected to be in the red. In other words, how much more the government is spending than it is taking in. And add that to the debt, what the U.S. already owes, $9.5 trillion, and some say that's a recipe for financial disaster.

ROBERT BIXBY, CONCORD COALITION: The federal government has to pay interest costs, just like if you were borrowing on your credit card. You have to pay interest costs. And last year, we spent over $200 billion on interest alone. One reason that the budget deficit is a problem is that taxpayers have to pay more and more on the national credit card.

QUIJANO: And the deficit may not cover the entire costs of the wars in Iraq and Afghanistan.

DANA PERINO, WHITE HOUSE PRESS SECRETARY: We make no apologies for the money we've spent to protect the people of this country.

QUIJANO: The Bush administration blames the higher-than-expected deficit on the slumping economy and the need for a $168 billion stimulus package meant to give the U.S. a financial shot in the arm.

JIM NUSSLE, WHITE HOUSE BUDGET DIRECTOR: Getting the economy back on track was a higher priority than immediate deficit reduction.

QUIJANO: While the $482 billion is a record dollar amount, experts say as a percentage of the nation's economy, this deficit is a little over three percent, not nearly as high as the six percent in 1983.

(END VIDEOTAPE)

QUIJANO: Still, the White House has lowered its economic growth forecast, now projecting the economy will grow by just 1.6 percent this year, and 2.2 percent next year -- Wolf.

BLITZER: Well, at least that's a little growth. Very, very modest, but it's better than negative economic growth, which is a sure economic sign of recession.

Some are saying that the nearly $500 billion is really more, because they don't include, what, about $80 billion in defense spending for the wars in Iraq and Afghanistan? What is the White House saying about that?

QUIJANO: Well, the White House says, look, about $70 billion is what they had looked at, but not getting through the entire year, which is why you see a discrepancy. The issue really being, of course, there will be unexpected costs that will arise. Those do not show up, of course, in this $482 billion figure, so certainly, Wolf, that will be an added cost on top of that $482 billion already on the books, so to speak -- Wolf.

BLITZER: Elaine Quijano is over at the White House.

Barack Obama and John McCain both are casting blame directly on the Bush White House for this soaring federal deficit, and they're pointing fingers at one another as well. A statement from the McCain campaign says -- let me read it to you -- "There is no more striking reminder of the need to reverse the profligate spending that has characterized this administration's fiscal policy."

It goes on to say, "Senator Obama will not commit to balancing our budget, does not propose to control spending, and has only one answer to every challenge: raise taxes."

This statement coming in from the Obama campaign. Let me read it to you.

"These have been years of unprecedented fiscal irresponsibility. That's an important issue in this election because Senator McCain is proposing to continue the same Bush economic policies that put our economy on this dangerous path..."

Tough statements from both of these campaigns on this record federal budget deficit.

Right now, the presidential election is 100 days away, and as we saw only a moment or so ago, our new Poll of Polls shows Obama now nine points ahead of Senator McCain.

Let's bring in our senior political analyst, Bill Schneider. He's watching this story for us. I'm not sure our Poll of Polls does show nine points ahead. I think that was the Gallup poll that showed a nine-point tracking poll. Our Poll of Polls is a little closer, about six points, is that right, Bill?

WILLIAM SCHNEIDER, CNN SR. POLITICAL ANALYST: The Poll of Polls is six points, and the latest Gallup tracking poll which just came out about an hour ago shows an eight-point lead for Obama.

Well your question, what does it mean, 100 days out? As the one- time Democratic nominee, Al Smith, used to say, let's look at the record.

(BEGIN VIDEOTAPE)

SCHNEIDER (voice over): They say a week is a long time in politics. A hundred days looks like forever. Everything could change. Or could it?

Let's see how accurate the polls were 100 days before the election for the last 50 years.

In three out of 12 elections, the 100-day-out Gallup polls were just about right. 1968, the midsummer poll predicted a close one: Republican Richard Nixon over Democrat Hubert Humphrey by two. Nixon won by one.

1972, the poll predicted a 26-point Nixon landslide. It was nearly that. Nixon beat Democrat George McGovern by 23.

2004, the polls showed a dead heat between George W. Bush and Democrat John Kerry. The election was close. Bush by three.

Six times the Gallup poll got the winner right, but the margin was too big. In 1976, for instance, 100 days before the election, the Gallup poll showed Democrat Jimmy Carter leading Republican Gerald Ford by 22. Carter did win, by two.

Only once did the 100-day poll understate the winner's margin. That was in 1984. The midsummer poll showed Reagan getting reelected by 12. He did get reelected, by 18.

Have the 100-day polls ever gotten it wrong? Yes, twice.

In 1960, Nixon led Democrat John Kennedy by six in midsummer. Kennedy ended up winning by less than a point.

In 1988, Democrat Michael Dukakis was 17 points ahead of George Bush in late July. The most famous blown lead in history.

Usually, however, the 100-day poll gets the winner right, but more often than not, the race gets closer. So where are we now? Barack Obama leads John McCain by eight points in the Gallup poll.

It looks like this one could be close.

(END VIDEOTAPE)

SCHNEIDER: Why is this race different from all other races? In every one of the last dozen presidential elections, either the president was running for re-election, or the vice president was running to succeed him. Imagine what would be happening if either George W. Bush or Dick Cheney were running this time. But, they're not -- Wolf.

BLITZER: Which makes for some fascinating potential.

All right, Bill. Good work. Thanks for that historic perspective.

Over the course of the next 100 days, there are a number of big events that could help decide this presidential contest, one way or another. Democrats will officially name Barack Obama as their nominee when they hold their convention in Denver at the end of August. The first week in September, Republicans name John McCain as their nominee in St. Paul.

The first presidential debate, by the way, is later in September, on the 26th. There are two more presidential face-offs, one vice presidential debate in October, before the moment of truth, November 4th. That would be Election Day.

A ravenous wildfire threatens to swallow more land. Not only is it a menace to homes, but it rages near one of the country's most popular national parks.

We'll give you an update.

And John McCain has a new anti-Barack Obama ad. It attacks Obama for something he did and didn't do during his trip. Some wonder though if McCain's ad will backfire.

Stay with us. You're in THE SITUATION ROOM.

(NEWSBREAK)

(COMMERCIAL BREAK)

BLITZER: To our viewers, you're in THE SITUATION ROOM.

Happening now, in a TV interview, Iran's president talks as if he wants peace, not war. But will Mahmoud Ahmadinejad meet a looming deadline and stop Iran's nuclear program?

The world will be watching China's Olympics, but one group threatens to interrupt the games with attacks against anyone associated with the games. You're going to see some very disturbing video of the threats just coming in.

And days after that Qantas airliner made an emergency landing with a massive hole, there could be a new reason to fear what could happen on your next flight. It involves something that virtually every plane has. We're all over this story.

I'm Wolf Blitzer. You're in THE SITUATION ROOM.

But let's get back to the number-one issue right now, the economy, and breaking America's budget right now, the $482 billion, the new White House projection of the federal deficit in fiscal year 2009. That's a record.

Let's discuss this and more with Senator Barack Obama's economic adviser, Laura Tyson. She was an adviser to Hillary Clinton's campaign. She also served as a top economic adviser to Bill Clinton in the White House. Also joining us, Nancy Pfotenhauer. She's a major economic adviser to John McCain, spokesman for the campaign as well.

Ladies, thanks very much for coming in.

Let me start with you, Laura.

If Senator Obama is president of the United States, he's got a lot of ambitious programs out there, health care for all Americans, all sorts of other social programs that are going to be very expensive. Almost $500 billion deficit projected. What is he going to do to cut that deficit?

LAURA TYSON, OBAMA ECONOMIC ADVISER: Well, I think it's important, to begin with, why we have the deficit we have. And I think it's really important to note that the economy is in such -- is deteriorating, that the tax revenues are slowing, that part of the deterioration in this budget number you're seeing is because of the weakness of the economy.

Part of the weakness of the economy is because we failed to make adequate investments in things like education, in getting our health care system correct, in generating more independence from imported oil, energy independence.

(CROSSTALK)

BLITZER: So, how is Senator Obama -- how is he going to cut the deficit?

TYSON: But the point is -- the point is, first of all, to say that the deficit is getting worse for failures of policy that were made under the current administration, many of which Senator McCain has proposed to continue.

BLITZER: But is that -- is this an important issue for Senator Obama, to cut the deficit?

(CROSSTALK)

TYSON: It is an important issue in two respects.

Number one, we -- I just came from a meeting, as you know, with a number of -- a bipartisan group of people who came around to talk about the economy. We distinguished very much the need for stimulus to an economy which is increasingly vulnerable, many people in the room thought faced a real recession. The vulnerability going forward is great.

The deficit is getting worse, but we have got to stimulate the economy. That's not crowding out private spending. That's crowding in private spending.

BLITZER: All right.

TYSON: Longer term, we also agreed we need to have laid out, as Senator Obama has done and is committed to do, for every long-run structural program he is proposing to spend money on, there is a clear paying-for strategy. It is laid out.

BLITZER: All right. I'm going to come to you, because I'm still pressing you. I'm still not hearing exactly how he's going to cut nearly half a trillion-dollar deficit that he could inherit from the Bush administration.

But let me bring Nancy Pfotenhauer from the McCain campaign in.

Among other things that the Obama campaign, Nancy, said today, "Senator McCain is proposing to continue the same Bush economic policies that put our economy on this dangerous path and that will drive America even deeper into debt."

What is he going to do differently than President Bush has done all these years to reduce this enormous deficit?

NANCY PFOTENHAUER, MCCAIN CAMPAIGN POLICY ADVISER: Well, spending, spending, spending.

Senator McCain has been a leader in the U.S. Senate -- and Laura knows this -- in trying to hold the line on federal spending. And what wasn't discussed earlier is the fact that Barack Obama has midwifed this as much as anyone else.

(CROSSTALK)

BLITZER: I want to hear what McCain is going to do to cut the deficit.

PFOTENHAUER: OK, certainly.

Senator McCain proposed a top-to-bottom review of the federal government and all spending programs. There will be consolidation and elimination. He has proposed to eliminate pork-barrel spending. And Senator Obama has proposed about $900 million of that in a very brief period of time that's been in the U.S. Senate. That's what I mean by he's part of the problem.

BLITZER: But you know, Nancy, that pork barrel spending is significant, but it's a relatively tiny percentage of the federal budget. PFOTENHAUER: It's important to stop that, though, Wolf.

In addition to that, Senator McCain is going to put in place spending disciplines like a constitutionally viable line-item veto, enhanced recision, the ability to stop the -- this -- this tremendous spending growth by forcing Congress to enroll each provision separately, so that he could veto each provision.

And keep in mind how we got here, an energy bill, a farm bill, a highway bill that is worth hundreds of billions of dollars and what "The Washington Post" called a pinata of pork.

BLITZER: Well, you're also neglecting -- you're neglecting, Nancy, mentioned -- you're neglecting to mention about $700 billion spent on the war in Iraq, money that could have been spent here at home.

PFOTENHAUER: Well, and it's important to focus on where that money would go in the future, since both candidates are agreeing that there's going to be a troop drawdown, if you will.

One important distinction between Senator McCain and Senator Obama is, Senator McCain has said, since this war has been financed with deficit spending, as the troop drawdown occurs, every penny of that needs to go to deficit reduction.

BLITZER: All right.

PFOTENHAUER: Senator Obama has done nothing but lip service on deficit reduction. Senator McCain has said, I will balance this budget by the end of my first term.

(CROSSTALK)

BLITZER: Let me bring back Laura Tyson.

He says this in a statement today, Senator McCain: "Senator Obama will commit to balancing our budget, does not propose to control spending, and has only one answer to every challenge, raise taxes."

Is that how he wants to balance the budget, by raising taxes?

TYSON: I think, if you actually look at the size of the tax cuts, what you will see is that Senator Obama has proposed $85 billion of tax cuts for the middle class, and he shows exactly how he would pay -- for him.

Like President Bush, Senator McCain has endorsed the Bush -- a continuation of the Bush tax cuts, which he questioned, which actually he was opposed to in 2001 and 2003, and hasn't provided any way to pay for them at all. So, I think, on tax policy, we can see that there's no commitment to deficit reduction on the side of...

(CROSSTALK)

BLITZER: All right, let me press you, Laura. (CROSSTALK)

BLITZER: Hold on. Hold on.

(CROSSTALK)

BLITZER: Give me an example of how Senator Obama is going to cut the deficit.

TYSON: I really think it's important here to make a distinction -- OK, I will.

You need to define for me, Wolf, which deficit you're talking about.

BLITZER: The budget deficit. The budget deficit.

(CROSSTALK)

TYSON: No, no, no, no, no, Wolf, as you know, first of all, as you know, there is a structural budget deficit and there's a cyclical budget deficit.

(CROSSTALK)

BLITZER: Explain how he's going to cut either one of them.

TYSON: There's a budget deficit -- all right, I will.

BLITZER: Just explain how he's going to cut the deficit.

(CROSSTALK)

TYSON: I'm about to. I'm about to.

The structural budget deficit -- the biggest driver of the structural budget deficit over the next 20 years is health care, is health care. And he has a meaningful health care reform that is paid for. If the meaningful health care reform is enacted, it will bring down the structural deficit. That is a major part of deficit reduction.

BLITZER: All right.

TYSON: If you ask me how he's going to reduce the deficit next year, what I will say is that, in a bipartisan group of business, labor, academics, there was consensus that the economy needs stimulus. The immediate focus is on stimulating the economy...

BLITZER: Let me let Nancy...

TYSON: ... not on deficit reduction.

BLITZER: Let me let Nancy respond to the one serious accusation you made against Senator McCain. He opposed the Bush tax cuts in 2001, opposed them in 2003, and now says they have to be made permanent, forever. That's going to increase the budget deficit. If you were to eliminate some of those tax cuts, that presumably would reduce the budget deficit, right, Nancy?

PFOTENHAUER: Well, keep in mind, keep in mind that he opposed the tax cuts because he said they needed to be accompanied with spending reductions.

If they had been accompanied by spending reductions, we would not be in the situation that we're in right now. Also, keep in mind that, for most of the last eight years, revenues have been running at about 18.8 percent of GDP. That is actually slightly above historical averages.

I agree with Laura on one thing, that the economic downturn has now become part of, if you will, this equation. And, therefore, revenues are sliding. But I would argue that that's because the market has recognized a couple of things.

One, Senator Obama, who is -- who is a potential president of the United States -- he's not going to get there, but he's a potential president of the United States -- is actively promising tax increases on income, on cap gains...

BLITZER: All right.

PFOTENHAUER: ... on increasing the amount of wages subject to the payroll taxes, won't lower corporate tax rates. He won't lower the tax -- the corporate tax rate.

(CROSSTALK)

BLITZER: Unfortunately, we have to leave it there. I will add just one thing, Nancy. When he opposed the tax cuts in 2001 and 2003, he also said they were skewed toward the wealthy. He didn't like that.

And he also said, at a time of war, you don't start cutting taxes. That's what he said at the time. But he's got a different sense right now.

All right, we are going to have to leave it right there, a good discussion, serious discussion. I'm still not hearing a lot from either one of you about how this budget deficit is about to be cut. But we will leave that for the next occasion.

Nancy Pfotenhauer, thanks very much.

Laura Tyson, thanks to you as well.

TYSON: Thank you.

PFOTENHAUER: Thank you. BLITZER: The presidential candidates are speaking out about affirmative action in this country. Are they tweaking or outright changing their positions in the heat of the campaign?

Plus, Barack Obama takes a sharp turn back to issue number one after his overseas tour. Donna Brazile and Alex Castellanos, they are standing by for our "Strategy Session."

And 120 feet below the streets of New York City, a massive project involving dynamite, hundreds of workers and one giant drill. We will explain -- right here in THE SITUATION ROOM.

(COMMERCIAL BREAK)

BLITZER: Senator Barack Obama accusing Senator John McCain of flip-flopping. It involves a new push to end affirmative action.

Carol Costello is working the story for us.

All right, you are looking at both candidates. They have got different positions. Explain what's going on.

CAROL COSTELLO, CNN CORRESPONDENT: They do have different positions.

Affirmative action has long been controversial. There are some who say we don't need such programs anymore, or, at the very least, those programs need to be tweaked.

(BEGIN VIDEOTAPE)

COSTELLO (voice-over): A woman, an African-American achieving success at the highest levels, some say it's a sign America really is the land of equal opportunity, certainly a country that no longer needs programs like affirmative action.

TODD GAZIANO, HERITAGE FOUNDATION: There is no justification for forward-looking racial preference policies that have no timetable, will never end, and amount, in fact, to quotas.

COSTELLO: Others say it's a bit of a stretch to equate the success of Senators Obama and Clinton as a sign there is no longer a need for affirmative action programs.

WARD HENDERSON, CIVIL RIGHTS COMMISSION: These are extraordinary individuals. And their success cannot be attributed, of course, to all the advances that we have made as a country. Their personal accomplishments have to be taken into account as well.

COSTELLO: But opponents of affirmative action point out that even Barack Obama has tempered his support for it.

OBAMA: I also think that we have to think about affirmative action and craft it in such a way where some of our children who are advantaged aren't getting more favorable treatment than a poor white kid who has struggled more. That has to be taken into account. COSTELLO: Affirmative action has long been, shall we say, a political hot potato. Despite pro-affirmative action rallies in states like California, voters have limited the scope of affirmative action in at least three states, seeing it as a quota system that is anything but fair. A similar measure is in the works in Arizona, John McCain's home state.

(BEGIN VIDEO CLIP)

GEORGE STEPHANOPOULOS, ABC ANCHOR: Opponents of affirmative action are trying to get a referendum on the ballot here that would do away with affirmative action. Do you support that?

MCCAIN: Yes, I do. I do not believe in quotas. But I have not seen the details of some of these proposals. But I have always opposed...

(CROSSTALK)

STEPHANOPOULOS: But the one here in Arizona, you support?

MCCAIN: I support it, yes.

(END VIDEO CLIP)

COSTELLO: Opponents quickly leapt on those remarks, pointing to statements McCain made in the late '90s, and posting these video clips on YouTube.

(BEGIN VIDEO CLIP)

MCCAIN: ... I would argue is to try to provide every child in America with an equal opportunity. We're talking about race, But what we're really talking about is economic origins.

(END VIDEO CLIP)

COSTELLO: But McCain's remarks echo those he made when he ran for president in 2000. He said affirmative action had been good for America, but hiring quotas had been bad.

(END VIDEOTAPE)

COSTELLO: And, by the way, ballot initiatives limiting the scope of affirmative action are being pushed in three other states, with great success -- Wolf.

BLITZER: Thanks very much. Good report, Carol Costello.

Coming up in our "Strategy Session": Donna Brazile and Alex Castellanos. We will discuss Barack Obama's visit from Europe -- to Europe. He's now back, and he's focusing in directly on the economy.

(BEGIN VIDEO CLIP)

OBAMA: The challenges we're facing could not be more critical. And if we want to meet them, then we can't afford, I believe, to keep on doing the same things that we have been doing over the last several years. We have to change course. And we're going to have to take some immediate action.

(END VIDEO CLIP)

BLITZER: With his trip abroad now in the rear-view mirror, is Senator Obama making up for lost time?

And a major series of attacks in Iraq, all with one common theme, the suicide bombers all women. This growing trend and what the Pentagon is trying to do about it, that's coming up -- right here in THE SITUATION ROOM.

(COMMERCIAL BREAK)

BLITZER: Barack Obama's back in the United States, but there's no welcome home sign from John McCain for Senator Obama. Senator McCain welcomes his rival with a hard-hitting new ad about what he did and didn't do on his trip.

Let's discuss in our "Strategy Session."

Joining us, our CNN political contributor the Democratic strategist Donna Brazile, and Republican strategist Alex Castellanos.

If you watch local television here in Washington, you have seen this ad running. I assume that the McCain campaign is eying Virginia, the Northern Virginia suburbs, right now.

We will run a little clip of this hard-hitting attack against Senator Obama.

(BEGIN VIDEO CLIP)

NARRATOR: Barack Obama never held a single Senate hearing on Afghanistan. He hadn't been to Iraq in years. He voted against funding our troops. And, now, he made time to go to the gym, but canceled a visit with wounded troops.

(END VIDEO CLIP)

BLITZER: All right, so you get the point. It's a tough ad.

What do you think? Is this a smart strategy for Senator McCain to be leveling against Senator Barack Obama?

DONNA BRAZILE, CNN POLITICAL ANALYST: Well, if the ad was factually correct, it might be a smart, hard-hitting attack. But it's just another misleading attack by the McCain campaign, that finds itself desperate for attention, and frustrated that it can not get any traction.

Senator Obama did visit the troops when he was in Iraq, when he was in Kuwait, when he was in Afghanistan. But he made a decision not to politicize his visit to -- to troops while he was in Germany. He has visited troops in -- as recently as June at Walter Reed. He supports...

(CROSSTALK)

BLITZER: So, you're saying it's not a good strategy?

BRAZILE: It's terrible when it's misleading and -- and not factual.

BLITZER: Is it a smart strategy for Senator McCain to be going after Senator Obama in this direct way?

ALEX CASTELLANOS, CNN POLITICAL CONTRIBUTOR: You know, Wolf, this is actually the second time Barack Obama's done something like this.

He gave a commencement speech when he was filling in for Ted Kennedy, and he was inspiring young people to -- calling them to service. And, of course, he mentioned all kinds of service, except one, serving in your armed forces in America.

So, Barack Obama's demonstrated a tendency to kind of, I think, sometimes forget that service in the military is important.

BLITZER: How would you -- if you were advising Senator Obama, how would you tell him to respond to this charge, not only this charge, but the other charge from Senator McCain, that Senator Obama is more interested in -- is more interested in winning an election than losing the war?

CASTELLANOS: Well, I think that's a -- the best thing for him to do is to come out and explain that he's committed to winning the war, not to coming home until the war is won, and until it's -- our interests are protected over there. And, of course, Barack Obama is actually moving in that direction and changing his position.

BLITZER: What do you think?

BRAZILE: I think Senator Obama should explain what we should do now that our troops have been very successful in Iraq and Afghanistan.

Look, I recognize that this -- you know, attack one's patriotism is part of the old recycled Republican playbook. But Senator Obama has demonstration, with his votes on Capitol Hill, his votes when he was a state senator, he cares for our troops, he cares for their families. And that's the best way to show that we honor our troops for their service and sacrifice to our country.

BLITZER: Let's take a look at the latest polls right now, because the polls show, in our CNN average poll of polls, 45 percent for Obama right now, 39 percent for McCain, 16 percent -- that's a pretty large number -- still unsure.

That's a pretty -- let's focus in on that unsure number. There's a lot of play now for those independents that are out there.

CASTELLANOS: You know, Barack Obama should be winning this thing going away. No one's ever had a worse hand of cards than poor John McCain.

You know, frankly, it's an unpopular Republican administration, a war that a lot of Americans are concerned about, the economy, $5 gas, and, yet, Barack Obama really is -- is still in a tight race here. And I think one reason is because we don't know who Barack Obama is.

You know, he says, Iowa, this is your moment. He goes to Europe, and says, Berlin, this is your moment. I'm a citizen of America. I'm a citizen of the world.

We're still trying to get a handle on who he is.

(CROSSTALK)

BLITZER: People are still trying to -- a lot of people are still trying to make up their minds, according to this poll, 16 percent.

BRAZILE: Well, that -- look, that's a good sign for Barack Obama, because, look, John McCain has been on the scene now for over 30 years, and he's run before. The fact that Senator Obama is in the hunt and clearly right now leading in many of the major polls, that is a good sign. But he's also leading in the battleground states. And that's even more important.

BLITZER: But it's tightening up in several of those battleground states.

BRAZILE: It's tightening up. But, Wolf, you know, until we see the vice presidential selection process, the convention, and three presidential debates, this -- right now, we're just talking about polls.

BLITZER: Right. I think Donna is right on that. The polls, right now, I don't think they necessarily mean a whole lot.

CASTELLANOS: But there's one little thing that is happening. And that is Senator McCain has been running an ad in these battleground states, a bio ad about his service in Vietnam, his sacrifice, and putting his country first.

And, of course, we're not seeing it here in Washington, so the news media doesn't think anything's happening. But it's tightening up where John McCain is running those ads.

(CROSSTALK)

BLITZER: Those ads, I think, are pretty effective, where they put the positive. When he goes on the negative and starts attacking Senator Obama, I'm not necessarily sure thank speaks for John McCain personally.

(CROSSTALK)

BRAZILE: Because it doesn't speak to John McCain. It doesn't speak to the man he is. I mean, look, everyone respects John McCain's service to his country, but there's no question, the American people want to hear about the issues facing this country.

BLITZER: See, a lot of those independents, they don't like to hear the mudslinging.

CASTELLANOS: Well, it's not mudslinging, though, about defining Barack Obama and who he is and what he's doing. It's a fair fight to define Barack Obama. What is he going to do for the country? As a matter of fact, I think there's an obligation to define Barack Obama. And Republicans have it just the way Democrats do, just the way do you it in a courtroom.

BRAZILE: But it should be factually accurate.

BLITZER: All right.

CASTELLANOS: And of course it should be, and will.

BRAZILE: It should be factually accurate and not a...

CASTELLANOS: And I'm sure it will.

BRAZILE: ... you know, a criticism of one's patriotism.

BLITZER: Guys, thank you.

BRAZILE: Thank you, Wolf.

BLITZER: It's being called a monumental waste, the building in Iraq that some say is $40 million of your tax money simply thrown away. We will tell what you it is.

And the prime minister of Pakistan, the new one, he's here in THE SITUATION ROOM today. We're talking about the strike today that may have taken out a major member of al Qaeda and Pakistan. My exclusive interview with the new Pakistani prime minister, that's coming up here in THE SITUATION ROOM.

(COMMERCIAL BREAK)

BLITZER: On our "Political Ticker" right now: Barack Obama says his sore hip should be better in about a week. The Democrat saw an orthopedic doctor in Chicago yesterday, got some X-rays, right after returning from his overseas trip. An Obama adviser says the senator's hip was hurting a bit from playing basketball. And he a good ballplayer, as we know.

Remember, for the latest political news any time, check out CNN.com/situationroom. You can download our new political screen saver there as well.

Let's go back to Jack. He's got "The Cafferty File."

Did you see that three-point shot he made, Jack, on the trip? CAFFERTY: Yes, but, I mean, you can see in that footage you just ran, he was walking just a little gingerly. And I guess he told the troops, was it -- Where was it? -- that he couldn't go full out, and play a full game with them.

BLITZER: Right.

CAFFERTY: But he would shoot horses with them. And I think that's where he made the three-pointer. But they expect him to recover, right? It's no big.

BLITZER: No.

CAFFERTY: All right.

This hour, the question, did Barack Obama's overseas trip change your opinion of him?

Jason writes from Koloa, Hawaii: "No, I have liked him from the time I heard him speak at the last Democratic National Convention. He is the new voice of America, one we have all been yearning to hear for a long time."

Danielle in Dallas writes: "No, Jack. It changed my opinion of John McCain."

Nathan writes: "Obama's trip overseas doesn't make him an expert in foreign affairs, any more than a trip to the aquarium makes me a marine biologist. Obama's arrogance is about the only thing voters know about this presumptuous Democratic nominee. And that arrogance was on full display in this ridiculous media stunt. Interesting how the media has lost its objectivity."

Tim in Florida: "I am Republican who, because of this trip, has decided that Obama is the best candidate for president. His youth and ability to be able to be able to use modern technology -- like the Internet and e-mail -- shows he is ready for what the future holds. I have not donated yet, but I will, the first day after I take out my money for gas."

David in New Jersey writes: "Barack's latest trip does nothing to change my opinion of him. I still feel that he lacks the experience to run this country. Furthermore, I'm still waiting for him to fall on his face, so that Hillary can step in and claim the nomination."

So is Hillary.

Joe in Virginia writes: "Obama has brilliantly outplayed McCain in Iraq, the Middle East and Europe. There is nothing left for McCain but to whine about Obama and plan for an upcoming competing trip to Czechoslovakia."

And Iris writes from Michigan: "Obama was on an overseas trip? Funny, I didn't see anything about that on the news."

If you didn't see your e-mail here, you can go to my blog at CNN.com/caffertyfile. We got lots and lots of e-mail on this. You can look for yours there, among hundreds of others that are posted -- Wolf.

BLITZER: Very creative bloggers, indeed. Thank you.

And to our viewers, you're in THE SITUATION ROOM.

Home  |  World  |  U.S.  |  Politics  |  Crime  |  Entertainment  |  Health  |  Tech  |  Travel  |  Living  |  Money  |  Sports  |  Time.com
© 2014 Cable News Network. Turner Broadcasting System, Inc. All Rights Reserved.