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THE SITUATION ROOM

Rescued American Hostages Speak Out for the First Time; Democrats Prepare for Convention in Denver; Both Parties Speak on The Economy's Importance in Election

Aired July 7, 2008 - 16:00   ET

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


MILES O'BRIEN, CNN ANCHOR: Happening now, breaking news. Rescued American hostages speak out for the first time. We're standing by for the statements on their harrowing ordeal in the Colombian jungle and the daring operation that set them free.
Plus, John McCain and Barack Obama try to one-up each other on the economy. McCain is banking on issue #1 to reenergize his campaign.

We'll talk to both economic advisers for both camps.

And Obama's field of dreams, the strategy behind his decision to accept his party's nomination at a stadium. Can McCain top that?

Wolf Blitzer's off today. I'm Miles O'Brien.

You are in THE SITUATION ROOM.

We now know that the three Americans held hostage by Colombian rebels for over five years endured abuse, disease and despair. But this hour we expect to hear more details. The three Americans were -- are at the Army hospital in San Antonio, and they're about to meet with reporters.

CNN's Susan Roesgen is on the phone.

And there, Susan, tell us what we can expect.

SUSAN ROESGEN, CNN CORRESPONDENT: Well, Miles, we hear applause now as, you know, they begin this news conference, applauding the successful rescue and the freedom at last of these three former hostages.

The hostages themselves are expected to make a small statement of some sort, or they may have their families make the statements. You hear the "Hooahs" in here. One of the hostages, a former Marine, Keith Stansell.

But they will not be allowed to take any reporters' questions, Miles. So, we hope to get some information from some of the medical doctors here who are treating them, trying to get these men readjusted to life as free men in the normal world, catching up on all that they've missed for the last five and a half years -- Miles.

O'BRIEN: Susan, they look great there. Obviously a very emotional moment.

What have we been hearing so far about their general condition? It looks like they probably could put on a few pounds. But otherwise, are they in good health?

ROESGEN: Well, we understand that one of the hostages, Marc Gonsalves -- he's the dark-haired gentleman -- that he may have been suffering from severe hepatitis in the jungle. We haven't had confirmation from the Army on that, but we understand from escaped hostages that he may have been very sick. So that's one thing they'll certainly be asking his doctors.

The other two are believed to be in good condition. They are being evaluated here, physically, psychologically, emotionally. These are modern-day Rip Van Winkles. They have to catch up with everything that's happened not only in their own personal lives, but in the world at large -- Miles.

O'BRIEN: Susan, tell us who we're seeing on the stage right now.

ROESGEN: This group of people I'm not that familiar with, Miles. I'm trying to talk softly and not disrupt the news conference.

O'BRIEN: I'll tell you what, why don't we listen in? Let's listen in, obviously to one of the family members.

UNIDENTIFIED MALE: That's my mother, my brother and the entire Howes family. I would like to express the utmost thanks to the entire Northrop Grumman family, as well as the U.S. and Colombian militaries for the sincere and constant support throughout the years, and for the safe return of my father, Thomas.

It has been a very difficult five and a half years, and we could have not hoped for a better outcome. Specifically, we would like to thank the family assistance team from the U.S. Army and at Northrop Grumman, all of our friends, my wonderful girlfriend back in Brevard County, for being there for us all. And especially my dad, Keith, and Marc for enduring five and a half years and finally returning to us.

(APPLAUSE)

THOMAS HOWES, RESCUED U.S. HOSTAGE: The old man's not going to do as well, but I'll really try.

Almost five and a half years ago we fell off the edge of the Earth. My companions helped me cope with difficult positions. During these years, our company took extraordinary care of our families.

Heroes tear (ph) down our spectacular destiny. The team of caring professionals here at Brooke Army Medical Center are guiding us through the reintegration process. And my heartfelt thanks to all those people.

We're doing well, but we cannot forget those that we left behind in captivity.

(SPEAKING IN SPANISH)

O'BRIEN: You're listening to Thomas Howes, one of the three American hostages released. All three were in a plane crash five and a half years ago working for Northrop Grumman in Colombia, helping the government there.

He's going back to English now, but he's basically saying in Spanish what he said in English at the outset.

(APPLAUSE)

UNIDENTIFIED MALE: Thank you, Mr. Howes, and the Howes family. You may leave the stage now.

Mr. Howes, please take a seat in the front row.

And replacing him will be Mr. Marc Gonsalves.

Mr. Gonsalves' family will also join him on stage.

(APPLAUSE)

UNIDENTIFIED MALE: Joining Mr. Gonsalves on stage is George Gonsalves, Monique Gonsalves, Michael Gonsalves, Joe Lasano (ph), Joey Van Buren (ph), Cody Van Buren (ph), Destiny Gonsalves, Mike Grazano (ph) and Carina Gerard (ph).

(APPLAUSE)

UNIDENTIFIED MALE: Mr. Gonsalves, would you like to make a statement?

UNIDENTIFIED MALE: Wow. It's been a long time, a long time since I've seen this gentleman here. And I'm so thankful to see him again.

I'm so proud of these three guys. I mean, what they went through. They're here. They're with us. Just don't know what to say.

One of the things, though, there's so, so many people to thank. And I just wouldn't have enough time in a day to thank them all here.

But I do want to say one thing. You folks out there in the media, you were with us all that time. You were very important to us, because you were the folks that we talked to and got our story out there, and kept these guys' story alive and didn't let them get forgotten like a lot of folks may have thought.

Certainly being in the jungle like that, no news or anything. But you folks were there for us, and I appreciate that.

I can't say enough about President Uribe and his military, our military, our government, our folks that supported us, U.S. Army South, which has been so good to us, brought us into their family. It's been really wonderful. The United States is a beautiful place. And these are beautiful men.

And I thank all of you.

(APPLAUSE)

UNIDENTIFIED MALE: All right. Thank you very much.

You may please leave the stage.

And next will be...

UNIDENTIFIED MALE: Sir, can I change the program?

UNIDENTIFIED MALE: I beg your pardon?

UNIDENTIFIED MALE: Who wants to go first, you or you, mom?

Michael, come here?

UNIDENTIFIED MALE: I'm Marc's brother. Everyone says they can tell by the way we look.

(LAUGHTER)

UNIDENTIFIED MALE: I just had a couple things to say.

I just wanted to say I'm happy to see my brother, Tom and Keith.

You guys are home safe. That's an awesome feeling for us, as I'm sure is for you guys, too.

I wanted to say thank you to Northrop Grumman. You guys have been awesome.

The government of the United States, the Colombian government, President Uribe, thank you all.

This has been a special, special weekend. And I couldn't tell you how much it means to our family, their family. Just thank you. Thank you to everyone.

(APPLAUSE)

UNIDENTIFIED MALE: I'd like to present my mother, Jo Rosano (ph).

(APPLAUSE)

UNIDENTIFIED FEMALE: I'm trying very hard not to cry. I've been crying for five years, and I'm still crying, but tears of joy -- I'm sorry -- that Marc, Tom and Keith are home. And I thank every single one of you for having this happen.

I'm sorry. I'm such a cry baby. I see my friend over there. She knows I'm always crying when it comes to these guys.

And as I told some of the people, I am now in retirement. The interviews are now -- you guys are taking over. I'm tired.

I want to thank the U.S. government. I want to thank Northrop Grumman.

I just want to thank our father up in heaven for guiding the personnel that was involved in this rescue without any bloodshed. And I can't even believe that, but it's true.

So -- and I want to also thank my media friends. And just thank you, all of you. Thank you so much.

They're home. Now we have to make sure that -- it's like, you know, you're afraid when they cross the street or something. But anyway, everyone.

And also this military base. The people are so wonderful. And usually, you know, I'm not at a loss for words, but today I am.

I just thank all of you very, very much. I thank the United States. I thank Colombia.

And just thank you very much, all of you. I love you all.

(APPLAUSE)

UNIDENTIFIED MALE: OK.

Ladies and Gentlemen, let's give them another round of applause.

(APPLAUSE)

MARC GONSALVES, RESCUED U.S. HOSTAGE: He won't walk by without hugging and kissing me. And I won't get tired of it.

I love you guys.

OK. My turn.

I am grateful for this opportunity to speak out to the world.

There was a time that when I slept, I would dream that I was free. That time was only a few days ago. It feels so good to be free here now with all of you.

I want to tell you about the FARC, a guerrilla group who claimed to be revolutionaries fighting for the poor people of Colombia. They say that they want equality. They say that they just want to make Colombia a better place. But that's all a lie. It's a cover story, and they hide behind it, and they use it to justify their criminal activity.

The FARC are not a revolutionary group. They are not a revolutionary group. They are terrorists. Terrorists with a capital T. Bad people.

They (INAUDIBLE) drug trafficking, extortion, kidnapping. They refuse to acknowledge all human rights. And they reject democracy.

I've seen them hold a newborn baby in captivity, a baby that needed medical help, that was sick. They kept him there in the jungle.

I myself, and my friends, Tom and Keith, we've also been victims of their hate, of their abuse and other torture. And I have seen how even their own guerrillas commit suicide in a desperate attempt to escape the slavery that the FARC have condemned them to.

The majority of the FARC's forces are children and young adults. They come from extreme poverty and have very little or no education. Many of them, they can't even read.

So they're usually tricked into joining the FARC. And they're brainwashed into believing that their cause is a just cause. But once they join, they can never leave. Because if they try, they will be killed.

There are people who right now in this very moment, they're still there in the jungle, being held hostage. In this exact moment, right now, they're being punished because we got rescued successfully.

I want you guys to imagine that. Right now, right now, they're wearing chains around their necks. They're going to get up early tomorrow morning, they're going to put a heavy backpack on their backs, and they're going to be forced to march with that chain on their neck while a guerrilla with an automatic weapon is holding the other end of his chain like a dog.

Those are innocent people. Those are people that were fighting or working for the country. And all they want is what we wanted, and what God had the grace to give us, our freedom.

I want to send a message to the FARC.

FARC, you guys are terrorists. You deny that you are. You say with words that you're not terrorists, but your words don't have any value.

Don't tell us that you're not terrorists, show us that you're not terrorists. Let those other hostages come home. Agree to President Uribe's proposal of an encounter zone.

Anywhere and any time you want, he proposed an encounter zone. Then make the humanitarian agreement and let the others come home. Then after that, a peace process, because otherwise this downward spiral that the FARC are on now will continue, and the Colombian military is going to dismantle the entire organization.

To the American people, I want to say thank you for remembering that we were there in the jungle. And I also want to ask you to never forget that there are others who are still there. And we need to get them out.

To all of those -- and there's so many names that I don't know -- that worked tirelessly day and night to find us, to save us, to negotiate for us, just to get us out, well, I send you my most heartfelt thanks. And especially to the very brave men and women of the Colombian army who executed that very daring and what I would think is probably the most perfect rescue that has ever executed in the history of the world.

It was for me.

Thank you. You guys, the ones that saved us, the ones that rescued us, are our heroes. You've given me my life back. And now I don't have to dream about being free anymore, and it feels so good to be free right now, here with you all.

Thank you.

(APPLAUSE)

Now I'm going to try to do it in Spanish.

(SPEAKING IN SPANISH)

O'BRIEN: As Marc Gonsalves moves into Spanish, just moving words, and angry words, talking about his ordeal for more than five years in the jungles of Colombia, in the hands of a group he described squarely as terrorists, the FARC. A group that describes itself as revolutionaries, but he will have nothing of it. Talking about the remaining hostages that are still there in the jungle, and how even as he is speaking, they are shackled in chains, forced to march at gunpoint, with AK-47s pointed in their direction, with heavy backpacks.

Their ordeal continuing. His ordeal over.

His family obviously overjoyed. Tremendously emotional situation as they -- as he said, every time he sees them, they have to hug him, reach out, touch him, and kiss him.

Susan Roesgen is in the audience there.

And Susan, I know you've got to be quiet because we're listening to this as it's going on, and you're right there in the room.

Just give us a sense of what we're missing on television. What's the electricity in that room?

ROESGEN: Well, it's pretty powerful, Miles. And I think what many Americans are missing is that these men went down, disappeared in the Colombian jungle in February of 2003. The Iraq war started less than a month later. And there is some sense among many of their families that that's part of the reason they did not get much coverage in all those years lost in the Colombian jungle. Very little coverage, because the Iraq war had begun, and our attention was elsewhere. I can also tell you, Miles, that, you know, they were hustled from place to place, and the military is debriefing them about the situation. So anyway, Miles, I've got to be quiet because the military has asked me to stop speaking. So they're going to continue with the news.

O'BRIEN: OK.

Susan Roesgen, who is there in the audience, talking about the statements that they made from the family's part, all of them complimentary toward the media. And yet, as Susan points out accurately, this was a story that was not a front page story over the course of the five years, lost in the mix with the war on terror, 9/11, the invasion of Iraq, and the subsequent war in Iraq.

Not getting quite the attention perhaps it would have deserved over the course of the years. But now this story, as it is being told and as it unfolds, is harrowing indeed.

Marc Gonsalves continues his talk in Spanish, translating what he has said just a few moments ago. We expect to be hearing from Keith Stansell in just a little bit. We heard just a little while ago from Thomas Howes.

As he continues in Spanish, we're going to take a brief break. As soon as he gets back into the English portion, and as soon as we hear from Keith Stansell, we'll come back to this live.

Coming up on the program, Barack Obama's flight is diverted and now the NTSB is investigating why. We'll tell you about it. We're going to speak with a CNN producer who was on that flight. Some scary moments there.

Plus, why John McCain's plan to balance the federal budget may not get voters excited.

And recession fear or reality? The public weighs in and casts blame.

Stand by for your "Strategy Session."

(COMMERCIAL BREAK)

O'BRIEN: Live pictures now coming to us from San Antonio, Texas. Former hostage -- we underscore "former" -- Keith Stansell and his family at the Brooke Army Medical Center.

An emotional moment as he and his fellow American hostages who have been held in Colombia for some five-plus years celebrate their freedom in the wake of being checked out medically and physically and emotionally.

We're about to hear from Keith Stansell.

KEITH STANSELL, RESCUED U.S. HOSTAGE: Good afternoon. It is my privilege to stand before you with my family, whose love and support sustained me through the most difficult ordeal of my life. They are, these people here, the reason that I'm alive and standing right here with all of you today.

Their consistent dedication and unwavering love never failed. It kept me alive. Believe that, it kept me alive.

Words cannot express my utmost respect and appreciation to the government and armed forces of Colombia, their heroic actions, those of those soldiers that day who brought me home safe. And for this, I thank them.

To my country, who never forgot me, never, and especially to the U.S. Embassy in Bogota, my heartfelt thanks.

And finally to Northrop Grumman, who cared for my family. And I greatly appreciate that, to all of you, and family assistance during my absence. Thank you. Thank you.

And to you, the men and women of the media, thank you for respecting our privacy in these last few days. Thank you. I ask you please to continue to do so. Please, as we proceed with our transition process back to a normal life as a family.

Thank you very much.

And to Governor Crist of the great state of Florida, Sir, I don't have a driver's license. How am I going to get home?

Thank you.

(LAUGHTER)

(APPLAUSE)

UNIDENTIFIED MALE: Ladies and Gentlemen, let's -- please join me in giving all of these great Americans a round of applause.

(APPLAUSE)

UNIDENTIFIED MALE: (OFF-MIKE) ... question-and-answer session.

O'BRIEN: That was former hostage Keith Stansell. He was preceded by Marc Gonsalves and Thomas Howes, all three of them employees of Destin Dome, were working with the Colombian government anti-drug efforts in the jungles there.

Their plane crashed and they were captured by the FARC guerrillas, who Gonsalves squarely called terrorists, held for five- and-a-half years, now free there in San Antonio at the Brooke Army Medical Center.

And as the doctors set up for their briefing, we are going to turn on to some other news for just a moment. We will get back to that briefing as events warrant there in San Antonio. Let's talk politics now. We're taking a closer look at John McCain's pledge that he -- if he's elected president, he will balance the budget within four years.

CNN senior political analyst Bill Schneider joins me.

Bill, kind of surprising perhaps to hear McCain talk about balancing the budget, especially in such a short period of time?

WILLIAM SCHNEIDER, CNN SENIOR POLITICAL ANALYST: Well, it is surprising, because most people believe the country's in a recession. And, during a recession, balancing the budget is usually not a high priority.

(BEGIN VIDEOTAPE)

SEN. JOHN MCCAIN (R-AZ), PRESIDENTIAL CANDIDATE: American workers and families pay their bills and balance their budgets, and I will demand the same thing of our government, which you're not getting now.

(APPLAUSE)

SCHNEIDER: John McCain will balance the budget by the end of his first term. That's what McCain's new economic plan says, a strange pledge to make during a recession, when the government is under pressure to spend more money.

We know two things about balancing the budget. One, voters think it's important. They agree with Ross Perot. Two, voters think other things are more important, like not raising taxes, and not cutting spending on popular programs.

So, how is McCain proposing to balance the budget? Not by raising taxes. McCain wants to make the Bush tax cuts permanent. Most voters think that's a fine idea. McCain says he will enforce spending restraint.

MCCAIN: When I'm president, I will order a stem-to-stern review of government, modernize how it does business, and save billions of dollars. I will veto every single bill with wasteful pork-barrel spending on it. You can count on it.

(CHEERING AND APPLAUSE)

SCHNEIDER: His plan proposes a one-year freeze in domestic spending. At a time of recession, that may be difficult. He proposes entitlement reforms, like personal Social Security accounts. Voters are skeptical of that.

His plan talks about reducing the growth in Medicare spending. That's already meeting with resistance. Remember all the talk in the 1990s about a peace dividend with the end of the Cold War? McCain's plan talks about savings from victory in the Iraq and Afghanistan operations, a victory dividend. Balancing the budget involves many tough choices. But it helps McCain position himself as a candidate of change.

MCCAIN: The Congress and this administration have failed to meet their responsibilities to manage the government. Government...

(APPLAUSE)

MCCAIN: Government -- government has grown by 60 percent in the last eight years.

(END VIDEOTAPE)

SCHNEIDER: McCain is criticizing the last eight years. Now, wouldn't that be the period when George W. Bush was president? Yes, it would -- Miles.

O'BRIEN: Yes, it would, Bill Schneider. Trying to put a little distance there, I think.

Thank you very much.

John McCain and Barack Obama spar over what has caused the economic problems and who would be better at fixing them. Now top economic advisers join me to spar over the details of their plans.

And even by typically notorious celebrity divorces, details of this one has heads turning -- the wife of the highest paid baseball player of all time files for divorce. One name mentioned? Madonna.

(COMMERCIAL BREAK)

O'BRIEN: Welcome back.

Carol Costello is off today. Mary Snow is watching stories incoming to THE SITUATION ROOM right now.

Mary, what's going on?

MARY SNOW, CNN CORRESPONDENT: Hi there, Miles.

Well, a takeover bid by Microsoft for Yahoo! may come back to the table. Microsoft is backing Carl Icahn's bid to oust Yahoo!'s board of directors. The software giant says, if the board goes along, it might renew its bid or negotiate another multimillion-dollar deal with Yahoo!. Yahoo!'s annual meeting is August 1.

And as the U.S. auto market shrinks, so could General Motors. With consumers turning away from trucks in favor of cars, GM is reportedly considering getting rid of some brands, speeding the introduction of small cars and cutting more white-collar jobs.

GM sales are down 16 -- 16.3 percent this year, that is. And, last week, its stock price dropped below $10. That's the first time that's happened since 1954.

At first, the damage to this Northwest Airlines Boeing 747 was thought to be the result of a collision with a bird. But the Federal Aviation Administration says, no, not at 18,000 feet. The airline says it was a minor maintenance issue, and the cause is now under investigation. No one on board the flight from Detroit to Tampa was hurt.

And the first hurricane of the season is gaining strength as it progresses across the central Atlantic Ocean. Hurricane Bertha is centered 775 miles east of the Leeward Islands. Forecasters say Bertha is expected to turn toward in the general direction of Bermuda. But it's too soon to tell if it will hit the island -- Miles.

O'BRIEN: Thank you very much, Mary. Appreciate it.

Now to the presidential race -- John McCain is trying to convince voters that he's the candidate who can save their jobs and fix the economy, not Barack Obama -- the Republican touting his economic proposals in Denver a short while ago.

McCain is promising to balance the federal budget by the end of his first term. He says he would help American household budgets by encouraging free trade, building nuclear power plants, and, first and foremost, cutting taxes.

(BEGIN VIDEO CLIP)

MCCAIN: The choice in this election is stark and simple. Senator Obama will raise your taxes. I won't. I will cut them where I can. Jobs are the most important thing our economy creates. When you raise taxes in a bad economy you eliminate jobs. I'm not going to let that happen.

(END VIDEO CLIP)

O'BRIEN: Barack Obama is firing back, portraying McCain's economic agenda as a continuation of President Bush's policies.

(BEGIN VIDEO CLIP)

SEN. BARACK OBAMA (D-IL), PRESIDENTIAL CANDIDATE: Senator McCain said earlier this year that America had made -- and I quote -- "great progress" economically over the past eight years. He believes we're on the right track, and he's launching a new economic tour today with policies that are very much the same as those that we have seen from the Bush administration.

(END VIDEO CLIP)

O'BRIEN: As the candidates spar over the economy, their top economic advisers spar over the details of their plans.

We're joined by Jason Furman, Obama economic adviser, and Nancy Pfotenhauer, who is a McCain economic adviser.

Good to have you both with us.

Nancy, ladies first today. Let's begin with the senator's economic plan. And one of the things he talks about, which I find interesting, is, it's important for the economy to attain victory in Iraq. Is that a realistic economic policy?

NANCY PFOTENHAUER, MCCAIN CAMPAIGN POLICY ADVISER: Well, I think it's one that actually both candidates have talked about. They have talked about the fact that as we attain victory in Iraq, and Afghanistan, that the dollars that are currently going to support those efforts can be -- you know, can be spent elsewhere.

And Senator McCain believes very strongly that, since those dollars were deficit spending to begin with, that those dollars should go to reduce the deficit in the future. And that is something that Senator Obama and Senator McCain disagree on.

You have two candidates here who have dramatically different economic paths. Ours is quite focused on creating jobs. And we believe Senator McCain's plans will create millions of new good American jobs.

(CROSSTALK)

O'BRIEN: Jason, let's talk about this issue of the deficit here for a moment. She just said you don't care about the deficit. Do you?

JASON FURMAN, OBAMA ECONOMIC ADVISER: I care absolutely about the deficit, Miles. And that's why Barack Obama has put forward a plan in which every proposal is paid for. It reduces the deficit.

And that's also not why he's getting up there and saying, I'm going to promise you hundreds of billions of dollars a year in tax cuts. But somehow I'm still going to balance the budget in 2013.

No one from the McCain campaign has given out any numbers from this pledge, because they're about $600 billion off from meeting that pledge to balance the budget in -- you would have to stop three Iraq wars to have enough money to pay for that plan.

O'BRIEN: Nancy, let's talk about that for a moment, because, you know, a lot of people would say, this is voodoo economics, offering up tax cuts and saying we're going to balance the budget, when all but -- if you count defense and all the entitlement programs and the interest on the debt, there's only about 18 percent of the budget that is truly discretionary.

PFOTENHAUER: No, this can be done. And, in fact, we have made significant progress in the past through bipartisan efforts to reduce spending at the same time that we reduced taxes.

O'BRIEN: Well, let's talk, though, about this stimulus package which Barack Obama is talking about. It amounts to $20 billion.

FURMAN: Fifty billion.

O'BRIEN: Fifty billion. OK. Fifty billion.

First of all, it doesn't seem like a lot of money when you consider the size of the economy. Secondly, we're just in the midst of a stimulus package right now. We don't know if they work or not.

What do you -- Jason, do you feel strongly that this is the right way to be spending -- or getting our way out of this near recession?

FURMAN: Right.

You know, Miles, I agree with what Secretary Paulson said last week, which is the first stimulus, an idea that was originally championed by Barack Obama, and something similar to his plan was ultimately enacted on a bipartisan basis, that we would be in much worse shape today if it hadn't been for that stimulus.

The problem is, no one thought oil was going to be at $140 a barrel when we passed that. So, a bunch of that stimulus that we passed back in February has basically been taken away by those high oil prices. So, what we want to do is come back and basically put that part of the stimulus back with a set of energy rebates, as well as addressing the housing and estate taxes.

(CROSSTALK)

O'BRIEN: Where does the money come from? Where does that $50 billion come from?

FURMAN: Oh, I would say most economists would agree that fiscal stimulus is best designed as something that you don't pay for, because you really want to expand the economy in the short run.

What's critical is that, when you have long-run plans, like the $1,000 tax cut for middle-class families that Barack Obama is talking about, that you say how you're going to pay for those proposals.

O'BRIEN: All right, Nancy, you're shaking your head over there. Go ahead.

PFOTENHAUER: I am shaking my head.

I don't believe that there's any legitimate economist in the world, not just in the United States, that believes that you raise taxes in a soft economy or in a recession. And that is precisely what Senator Obama is proposing.

He's proposing to increase income taxes, to increase payroll taxes. He's not doing anything on the corporate tax, which, when Jason wore a different hat, he was in favor of reducing the corporate tax rate, because it's -- we're almost tied for worst in the world. We're second worst in the world.

And Senator Obama is against free trade, which is really a ridiculous thing to be championing again at a time of an economic softening or recession. You do not raise taxes. You do not embrace protectionist policies. Those are two things that Obama is doing. O'BRIEN: All right, Nancy...

(CROSSTALK)

PFOTENHAUER: It doesn't matter what country you're in. That's disaster.

(CROSSTALK)

O'BRIEN: Hang on one second.

FURMAN: Nancy, we have a lot of differences in economic philosophy, what we would do as president next year, and those are things we should debate. But why couldn't we now do what we did as a bipartisan basis? Back in February, both parties came together, passed a fiscal stimulus plan. The economy would be in much worse shape today without it.

Why can't we set aside some of these bigger debates and talk about what we need to do now, so we don't have another six months of job loss?

O'BRIEN: All right, Nancy, let me ask you this.

You talk about a balanced budget being a cornerstone of the McCain economic policy. And doesn't that mean, by definition, that a President McCain would have to go after the entitlements? And that means Social Security.

PFOTENHAUER: Well, I think, over the long term, and any president -- and over the long term means past their first term, but when you go out 20 -- if you're worried about where we're going to be in 20 or 30 years, really, Congress and the president, whatever party is in charge, needs to grapple with those things. It's just a simple math...

(CROSSTALK)

O'BRIEN: So, how are you going to do it?

(CROSSTALK)

PFOTENHAUER: It's just a simple matter of math.

(CROSSTALK)

O'BRIEN: How would Senator McCain do that?

PFOTENHAUER: The way Senator McCain approaches reaching a balanced between in his first term is to -- is to cut taxes that will spur economic growth and that have been proven to spur economic growth, so you get a nice economic growth lift. And that's what you need. Again, these are policies that work not just in the United States, but if they're tried in Ireland, they work. If they're tried in New Zealand, they work, the same way Senator Obama's proposals, if they're tried in other countries, don't work. So, you're going to cut taxes to spur economic growth. You're going to impose significant and real budget process, or discipline -- spending disciplines that should have been in place, frankly, decades ago and have not been.

And then you're going to reach across the aisle and embrace significant spending reduction to link to tax reduction. That was done during the Clinton years, by the way. It tends to work better with divided governments.

(CROSSTALK)

O'BRIEN: Jason, Jason, I need to go to you. What would Senator Obama do -- let's face it -- Social Security is a huge issue. And if you're talking about trying to balance out this budget one way or another, you have got to deal with that issue, right?

FURMAN: Absolutely.

First of all, I'm glad Nancy wants a Democratic Congress, because I do, too.

(LAUGHTER)

FURMAN: What that Democratic Congress needs, though, is a president who will be a partner in fiscal discipline, a president who will support the...

(CROSSTALK)

O'BRIEN: Let's talk about that. What is he going to do about Social Security?

FURMAN: Social Security, what he said is the program faces a challenge. It's not the biggest part of our fiscal problem. That's health care. And that's why Senator Obama has placed a big emphasis on restraining the health of health care in the private sector and the public sector.

O'BRIEN: All right.

FURMAN: But it's a challenge.

(CROSSTALK)

FURMAN: Number two, we want to protect middle-class families. So, what he would do is look first to families making over $250,000 and see if they could pay a little bit more into Social Security, not fully raise the cap, with the full rate above them. That's not his proposal. That's not his plan, but look to them first.

(CROSSTALK)

O'BRIEN: But at the bottom of the ledger, if you have a President Obama, wouldn't taxes on the whole be higher?

FURMAN: Absolutely not.

There's no debate in this election over whether we should cut taxes. The debate in this election is who we should cut them on. Do we want to cut taxes on corporations and leave out 101 million households for middle-class tax cuts? The ones who are lucky enough to get one get maybe $125 in the first year? That's John McCain's plan.

Or do we want to cut taxes for middle-class families -- 95 percent of workers and their families get a tax cut, $1,000 a family. Senior citizens up to $50,000, no more taxes. That's the debate here. It's not whether we're cutting taxes. It's who we're cutting them on and whether we're doing it in a fiscally responsible manner that's not going to hurt...

(CROSSTALK)

O'BRIEN: Final words, Nancy. Go ahead.

PFOTENHAUER: That is absolutely not the case. You are increasing taxes. You're increasing income taxes.

And, by the way, the majority of small businesses file as individuals, and they are over that $250,000 threshold.

(CROSSTALK)

FURMAN: The majority of small businesses are over that threshold, Nancy?

PFOTENHAUER: The -- 55 percent. And the engine, the engine of economic growth or job creation is small businesses. You're killing them with the increase in the income tax. You are killing them with the health care mandate that you are forcing on them.

They will have to choose between health insurance and hiring that next person. It doesn't make any difference in the world if you're forcing a health care mandate on somebody and they don't have the job where they're going to get the health insurance, which is why our approach is better.

You just transfer significant money into the government sector from the private sector. That doesn't lower the costs. That just changes them. And you kill small business.

O'BRIEN: All right. Thank you very much.

Nancy Pfotenhauer, Jason Furman, obviously, we could go on. We appreciate your time.

California burning, but there's progress to report against hundreds of wildfires.

Plus, a recession and Republicans. Voters define the economy and issue number one in this election. Paul Begala and Leslie Sanchez go head-to-head in our "Strategy Session." And the wraps come off a secret report on why food prices are skyrocketing.

(COMMERCIAL BREAK)

O'BRIEN: Carol Costello is off today. Mary Snow is monitoring stories coming into THE SITUATION ROOM.

Mary, what's going on?

SNOW: Miles, Israel has signed a U.N.-brokered deal with Hezbollah. Under the agreement, Israel would release prisoners in exchange for two Israeli soldiers whose kidnapping triggered the 2006 war with the Iranian-backed militants in Lebanon. Hezbollah hasn't commented on their condition, but the two soldiers are widely presumed dead.

Iraqi Prime Minister Nouri al-Maliki says his country now favors an interim agreement on the presence of U.S. troops, instead of a formal long-term pact. The short-term deal would include a timetable for troop withdrawal, which President Bush opposes. Some agreement is needed to extend the troops' presence once a U.N. mandate expires at the end of this year.

At least 41 people are dead and more than 100 injured in a suicide car bombing in Kabul, Afghanistan. It happened on a busy street near the Indian Embassy. And many of the victims were women and children. Afghan President Hamid Karzai says -- calls it an abominable act that was the work of enemies of Afghanistan's friendship with India.

And in neighboring Pakistan, a series of blasts killed at least one person in Karachi. Police reported five explosions throughout the country, one near a police station. There's been no claim of responsibility. The attacks come one day after a suicide bombing at a rally killed 17 in Islamabad -- Miles.

O'BRIEN: All right. Thank you very much, Mary Snow. Appreciate that.

Our Political Ticker today, it could rival the biggest rock concerts or sporting events, 75,000 screaming fans, the eyes of the world watching, with millions of people hanging on one man's words. Won't be a rock concert, though. It will be Barack Obama's speech at the Democratic National Convention next month.

Here for today's "Strategy Session," two CNN political contributors. Paul Begala is a Democratic strategist, Leslie Sanchez on the other side of the aisle, both of them in THE SITUATION ROOM, or the auxiliary situation room.

(LAUGHTER)

O'BRIEN: Good to have you both with us this afternoon.

Let's talk about Obama and what used to be called Mile High Stadium. Everything now has a corporate name. INVESCO Field.

Leslie, how does McCain counter that kind of event?

LESLIE SANCHEZ, REPUBLICAN STRATEGIST: I don't know if you can counter it, Miles, with imagery. I mean, it's truly phenomenal to think one man would be standing there in front of 80,000 individuals and really have the oration of a lifetime.

But if the hard work of being a president is stagecraft and glamour, then basically you would have Jay Leno as president. That's not really what this ultimately is about.

O'BRIEN: OK, Paul, what do you say to that? First of all, look at the size of that stadium. You know, you hold an event there, you have got to fill a lot of seats. You worked in a lot of political campaigns over the years. Can you fill a site like that?

PAUL BEGALA, CNN POLITICAL ANALYST: I can't, but Barack can.

But the last time this was done was John F. Kennedy, 1960, in Los Angeles. The Democratic Convention was held at a sports arena that held about 16,000 people. But when it was time for JFK to give his speech, he moved next door to the Los Angeles Memorial Coliseum. He had 80,000 people there and he gave his famous new frontier speech.

I think Barack can pull it off. There's very few people who can fill a stadium that large and to engage an audience that large, but Senator Obama has proven that. I think it's a wonderful idea. Yes, it's going to cost more. There will be more logistical headaches, particularly for like CNN and other networks going to cover it, but well worth it for the Obama campaign, a very smart move.

O'BRIEN: Well, imagine the security headaches as well.

You know, we talk about people being apathetic about politics. I guess this says that there is a little interest in politics out there, if they think they can fill this huge stadium.

SANCHEZ: You know what, Miles? We have got to start putting the connection together. This is definitely larger than life. There's no doubt about that. It's exciting. People want to see it for the sense of it being such a historic event and presidential election.

But when it comes down to actual voters, I think there's going to be a disconnect with whether or not this oration, this kind of spectacular, Super Bowl type of event is really what people are looking for when it comes to deciding a president.

O'BRIEN: What do you think, Paul? Do people want a good show?

SANCHEZ: Sure.

BEGALA: I think it's as part of it. Part of presidential leadership is stagecraft and inspirational leadership.

Ronald Reagan had that in spades. I think my old boss Bill Clinton gave a pretty good talk. And so does Senator Obama. I think it is a big part. The ability to move the nation with words from whichever side of the aisle you happen to be on is very important.

I think after -- look, we have had George W. Bush for almost eight years, seven-and-a-half years, and watching that poor man try to finish a sentence is like watching a fat drunk guy trying to cross an icy street.

You're sort of rooting for him, but you know he can't quite do it.

And I think people are -- one of the reasons they're responding to Senator Obama is that he's showing real leadership of the kind of that we need. And people want change in this country.

SANCHEZ: You know, Paul, the reason they're responding to him is because he's talking about change.

BEGALA: Yes.

SANCHEZ: He's talking about a new idea for America, but people don't really have a sense of what that change is. They think it's great. It's all pomp. But what's behind the rhetoric?

And, ultimately, that's going to decide who the next president is.

O'BRIEN: Well, listen, why don't we get behind the rhetoric here for just a moment and behind the stagecraft and let's talk a little bit about the economy. We have been talking a lot about that today because the candidates were talking about it.

Let me show you a CNN/Opinion Research poll about the recession, or the perception of a recession anyway. We asked Americans back at the end of June if they felt the U.S. is in a recession.

Here are the numbers -- 27 percent say serious -- 29 percent say moderate -- 19 percent say mild. Only a quarter of Americans say there's no recession at all.

So, Leslie, I have got to ask you, that's coming off of eight years of Republican administration. How does McCain work his way -- how does he put some distance between the Bush administration and himself? Because obviously the economy could drag him down.

SANCHEZ: I will tell you this down. The economy can drag any candidate down. That's not so much the issue. I think there's a couple of different points here.

(CROSSTALK)

O'BRIEN: But isn't it harder for John McCain?

SANCHEZ: It's harder for Republicans period in this year.

O'BRIEN: OK. SANCHEZ: Let's just acknowledge the truth in that sense. And Republicans used to be stewards of the economy, of fiscal responsibility of the budget. And I think a lot of conservatives fundamentally feel that we have abandoned those principles. And they were very upset in 2006.

And I remind you, Democratic Congress comes in, gas prices were $58 a barrel. Now they're $143. So, don't go around blaming the Republicans for everything with respect to an economic downturn. I think the reality is that it's something that we're going to be moving out of.

People are feeling the pinch. And Senator McCain has to talk economics in terms of pocketbook issues and knowing he feels their pain, to quote something from your former boss, Paul.

BEGALA: Yes. Miles, I listened to the interview you did with Nancy Pfotenhauer from the McCain campaign, Jason Furman from the Obama campaign.

And it was striking to me, there wasn't a thing that Ms. Pfotenhauer said that wasn't already a Bush position. The truth is, John McCain embraces whole hog the Bush economic policies. In fact, he wants to make them permanent. Even Bush had them temporary. His economic policies would expire in 2011. McCain wants them to be permanent.

So, I think, when people want change, you get 75 percent say we're in a recession. They want change. Obama is running on change. And McCain, God bless him, he's running on more of the same. He's Bush on steroids.

SANCHEZ: You know, I have to add this point. Let's look at the economy.

And, holistically, you have got the recovery from the 2001 recession. You have got the rebound from 9/11 and seven years of consecutive economic growth. Those were very much a part of this Bush economic plan in terms of the tax cuts. And Nancy Pfotenhauer was exactly correct when she's talking about the implications that Barack Obama's policies have on small businesses. There's a lot of people who leave that group alone and forget to talk about it. But those are the ones who feel this pinch the most.

O'BRIEN: All right. Got to leave it at that.

Leslie Sanchez, Paul Begala, our "Strategy Session." Thank you both very much for joining us in THE SITUATION ROOM auxiliary room.

You are in THE SITUATION ROOM.