STEPHANOPOULOS: Probably the most definitive promise you made in the campaign is that no one in the middle class would get a tax increase on your watch.

OBAMA: Right.

STEPHANOPOULOS: Yet this week, Senator Rockefeller and several other Democrats say that this bill by Senator Baucus is a big middle- class tax increase. Do you agree? And does that mean you can't sign it?

OBAMA: Well, I don't agree. I think that what they were referring to -- and I haven't looked at the quotes. But I think that they were concerned about whether or not this was actually affordable.

If you're saying to people, "You've got to get health insurance," but they can't actually afford it, and they have to pay a penalty if they don't get it, then that's a pretty big burden on middle-class families. That's a concern I share: making sure that this is affordable.

But the first thing we've got to understand is, you've got what is effectively a tax increase taking place on American families right now. The Kaiser Family Foundation report just came out last week. Health care premiums went up 5.5 percent last year at a time when the rest of the economy, inflation was actually negative. So that is a huge bite out of people's pockets.

And part of what I've been trying to say throughout this campaign -- this effort to get health care done -- is that, if we don't do anything, guaranteed, Americans' costs are going to go up, more people are going to lose health care coverage, the insurance companies are going to continue to prevent people from getting it for pre-existing conditions. Those are all burdens on people who have health insurance right now. And...

STEPHANOPOULOS: That is true, but...

OBAMA: And so -- and so -- just to close the loop on this -- the principles I've put forward very clearly, when I spoke to the joint session of Congress, is that we're going to make sure that, number one, if you don't have health insurance, you're going to be able to get affordable health insurance.

Number two, if you have health insurance, we're going to have insurance reforms that give you more security. You know what you're going to get. You know that, if you're paying your premiums, you're actually going to have coverage when you get sick.

Number three, it's going to be deficit neutral. It's not going to add a dime to the deficit, now or in the future.

Number four, it's going to start driving down our costs over the long term.

Now, 80 percent of what I'd like to see is actually already in all the various bills that are in Congress. That last 20 percent is tough, because we've got to figure out -- making sure that we're paying for it properly, making sure that it really is relief to families who don't have health insurance, making sure that all the various details that are out there line up, and that's going to take some time.

But I think that the effort by the Senate Finance Committee is a serious, strong effort to move an agenda forward. We've seen some positive signs from people who might have been otherwise a little bit shaky on health care, including Republican Olympia Snowe -- I think, had some nice things to...

STEPHANOPOULOS: Hasn't signed on yet, though.

OBAMA: Hasn't signed on, but has said that this is a legitimate effort to try to solve the problem. What I want to see is that we just keep on working on it over the next several weeks.

STEPHANOPOULOS: How about the matter of first principles, though? You mentioned these premium increases.

OBAMA: Yes.

STEPHANOPOULOS: But they're not happening as a result of a decision by the government.

OBAMA: Right.

STEPHANOPOULOS: You were against the individual mandate...

OBAMA: Yes.

STEPHANOPOULOS: ... during the campaign. Under this mandate, the government is forcing people to spend money, fining you if you don't. How is that not a tax?

OBAMA: Well, hold on a second, George. Here -- here's what's happening. You and I are both paying $900 bucks on average -- our families -- in higher premiums because of uncompensated care. Now, what I've said is that, if you can't afford health insurance, you certainly shouldn't be punished for that. That's just piling on.

OBAMA: If, on the other hand, we're giving tax credits -- we've set up an exchange, you are now part of a big pool, we've driven down the costs, we've done everything we can, and you actually can afford health insurance, but you've just decided, "You know what? I want to take my chances," and then you get hit by a bus, and you and I have to pay for the emergency room care, that's...

STEPHANOPOULOS: That may be, but it's still a tax increase.

OBAMA: No. That -- that's not true, George. The -- for us to say that you've got to take a responsibility to get health insurance is absolutely not a tax increase.

What it's saying is, is that we're not going to have other people carrying your burdens for you any more than the fact that right now everybody in America, just about, has to get auto insurance. Nobody considers that a tax increase. People say to themselves, that is a fair way to make sure that, if you hit my car, that I'm not covering all the costs.

STEPHANOPOULOS: But it may be fair, it may be good public policy...

OBAMA: No, but -- but, George, you -- you can't just make up that language and decide that that's called a tax increase. Any -- if I -- if I say that right now your premiums are going to be going up by 5 percent or 8 percent or 10 percent next year, and you say, "Well, that's not a tax increase," but, on the other hand, if I say that I don't want to have to pay for you not carrying coverage, even after I give you tax credits that make it affordable, then...

STEPHANOPOULOS: I -- I don't think I'm making it up. Merriam- Webster's dictionary: Tax, "a charge, usually of money, imposed by authority on persons or property for public purposes."

OBAMA: George, the fact that you looked up Merriam's dictionary, the definition of tax increase, indicates to me that you're stretching a little bit right now. Otherwise, you wouldn't have gone to the dictionary to check on the definition. I mean, what...

STEPHANOPOULOS: Well, no, but...

OBAMA: ... if what you're saying is...

STEPHANOPOULOS: I wanted to check for myself. But your critics say it is a tax increase. OBAMA: My critics say everything is a tax increase. My critics say that I'm taking over every sector of the economy. You know that. Look, we can have a legitimate debate about whether or not we're going to have an individual mandate or not, but...

STEPHANOPOULOS: But you reject that it's a tax increase?

OBAMA: I absolutely reject that notion.

STEPHANOPOULOS: Let's go to Medicare, then...

OBAMA: Good.

STEPHANOPOULOS: ... because you also said that no one will lose what they have. And Senator Bill Nelson , a Democrat, says that the cuts you're looking at in the Medicare Advantage program...

OBAMA: Right.

STEPHANOPOULOS: ... are going to force people to lose coverage they now have.

OBAMA: No. Here -- here's what's going to happen. These are essentially private HMOs who are getting, on average -- and this is not my estimate, this is Democrats and Republicans, experts have said -- they're getting, on average, about 14 percent more over-payments, basically subsidies from taxpayers, for a program that ordinary Medicare does just as good, if not better, at keeping people healthy.

Now, they package these things in ways that, in some cases, may make it more convenient for some consumers, but they're overcharging massively for it. There's no competitive bidding under the process.

And so what we've said is, instead of spending $17 billion, $18 billion a year -- $177 billion over 10 years -- on that, why wouldn't we use that to close the donut hole so the people are actually getting better prescription drugs...

STEPHANOPOULOS: But Senator Nelson says it's going to...

OBAMA: ... or why don't we -- why don't we make sure that, you know, we're using some of that money to actually make people healthier?

STEPHANOPOULOS: But he says it's going to cause beneficiaries right now to lose what they have.

OBAMA: Look, I understand that change is hard. If what you're saying is, is that people who are currently signed up for Medicare Advantage are going to have Medicare and the same level of benefits, but they may not be having their insurer get a 14 percent premium, that's absolutely true. And will the insurers squawk? You bet.

STEPHANOPOULOS: They may drop the coverage.

OBAMA: No. These folks are going to be able to get Medicare that is just as good, provides the same benefits, but we're not subsidizing them for $18 billion a year.

STEPHANOPOULOS: So Senator Nelson, he wants to pass an amendment that shields anyone currently on Medicare Advantage from any cuts. Do you support that?

OBAMA: George, I'm not going to be negotiating particular provisions of the bill sitting down with -- with you here right now. What I am going to say is this: The basic principle that is indisputable is that we are wasting hundreds of billions of dollars in Medicare that is not making people healthier. I want to make sure that we're using that money to actually make people healthier. And -- and that...

STEPHANOPOULOS: But if people lose their Medicare Advantage?

OBAMA: What I have said is we're not going to take a dollar out of the Medicare trust fund. We're going to make sure that benefits are just as strong, if not stronger. We're not going to subsidize insurance companies in ways that end up creating a situation that Medicare is actually weaker and has a less sound financial foundation, because right now we've got eight years from now potentially Medicare going into the red.

STEPHANOPOULOS: Let me ask you about the broader debate around this. And, you know, you've seen a lot of your allies look at this whole debate around health care and see the issue of race being injected after Joe Wilson 's outburst.

STEPHANOPOULOS: This week, President Carter -- I know you disagree with that, that race is involved here. And, you know, we've talked about this in several interviews about these kind of issues. You always dismiss it. So I'm just wondering: Does it frustrate you when your own supporters see racism when you don't think it exists?

OBAMA: Well, look, I think that race is such a volatile issue in this society, always has been, that it becomes hard for people to separate out race being sort of a -- a part of the backdrop of American society versus race being a predominant factor in any given debate.

And what I've said -- when we talked about during this -- during the campaign, are there some people who don't like me because of my race? I'm sure there are. Are there some people who vote for me only because of my race? There are probably some of those, too.

The overwhelming part of the American population, I think, is right now following this debate and they're trying to figure out, is this going to help me? You know, is health care going to make me better off?

Now, there are some who, setting aside the issue of race, actually I think are more passionate about the idea of whether government can do anything right. And I think that that's probably the biggest driver of some of the vitriol right now is...

STEPHANOPOULOS: Whether you're going to raise their taxes.

OBAMA: Well, it goes beyond taxes. I mean, I think that what we're seeing right now is a part of a running debate that we saw during FDR, we saw during Ronald Reagan. Any time there's a president who is proposing big changes that seem to implicate the size of government, that gets everybody's juices flowing, and -- and sometimes, you know, you -- you...

STEPHANOPOULOS: But you're in a different...

OBAMA: ... you get some -- some pretty noisy debate. But -- but just to finish the thought, I think what I'm proposing is a very modest attempt to make sure that hard-working families out there are going to have the security of health insurance that they can count on.

This isn't a radical plan. This isn't grafting a single-payer model onto the United States. It's simply trying to deal with what everybody acknowledges is a big problem. I think that there are some opponents who have seized on this and tried to use this as a proxy for saying that somehow we are vastly expanding government and taking over every sector of the economy. That's what a lot of this debate is about. I think they're wrong.

The one thing I hope is, is that we can have a civil argument about it and that we are able to acknowledge good motives on both sides. Everybody is a patriot. Each of us are Americans that care deeply about this country.

And -- and sometimes I think that, frankly, the media encourages some of the outliers in behavior, because, let's face it, the easiest way to get on television right now is to be really rude. If you're just being sensible and giving people the benefit of the doubt, and you're making your arguments, you don't -- you don't get -- you don't get time on the nightly news.

STEPHANOPOULOS: You might on Sunday morning, but...

OBAMA: But if you say -- but if you -- if you say something outrageous, you're there in a hot second.

STEPHANOPOULOS: But have your -- have some of your allies made it easier for -- handed your opponents some ammunition, like ACORN, for example...

OBAMA: Well, look, the -- you know, I think that -- are there folks in the Democratic camp or on the left who haven't -- haven't always operated in ways that I'd appreciate? Absolutely.

STEPHANOPOULOS: Congress said they should cut off all funding for ACORN.

OBAMA: Is -- is -- is...

STEPHANOPOULOS: ... all funding for ACORN. Are you for that?

OBAMA: Is that true on the other side, as well? Of course that's true.

STEPHANOPOULOS: How about the funding for ACORN?

OBAMA: You know, it's -- frankly, it's not really something I've followed closely. I didn't even know that ACORN was getting a whole lot of federal money.

STEPHANOPOULOS: Both the Senate and the House have voted to cut it off.

OBAMA: You know, what I know is, is that what I saw on that video was certainly inappropriate and deserves to be investigated.

STEPHANOPOULOS: So you're not committing to -- to cut off the federal funding?

OBAMA: George, this is not the biggest issue facing the country. It's not something I'm paying a lot of attention to.

STEPHANOPOULOS: Afghanistan is a big issue facing the country right now.

OBAMA: That is a big issue. That's worth talking about.

STEPHANOPOULOS: You were for a flexible timeline in Iraq. Some people now are saying that's exactly what should happen in Afghanistan and the same conditions hold. Do you agree with that?

OBAMA: Here's what I think. When we came in, basically there had been drift in our Afghan strategy. Everybody acknowledges that. And I ordered a top-to-bottom review.

The most important thing I wanted was us to refocus on why we're there. We're there because Al Qaida killed 3,000 Americans, and we cannot allow extremists who want to do violence to the United States to be able to operate with impunity.

OBAMA: Now, I think we've lost -- we lost that focus for a while. And you started seeing a classic case of mission creep, where we're just there and we start taking on a whole bunch of different missions.

I wanted to narrow it. I did order 21,000 additional troops there to make sure that we could secure the election, because I thought that was important. That was before the review was completed.

I also said, after the election, I wanted to do another review. We've just gotten those 21,000 in. General McChrystal, who's only been there a few months, has done his own assessment.

I am now going to take all this information, and we're going to test whatever resources we have against our strategy, which is if, by sending young men and women into harm's way, we are defeating Al Qaida and -- and that can be shown to a skeptical audience -- namely me, somebody who's always asking hard questions about deploying troops -- then we will do what's required to keep the American people safe.

STEPHANOPOULOS: So no -- no final decision. I just have one -- one last question...

(CROSSTALK)

OBAMA: Now, the -- the only thing I want to say, though, is -- is that what we -- I just want to make sure that everybody understands that you don't make decisions about resources before you have the strategy ready.

STEPHANOPOULOS: I just have time for one final question. I'm sure you know the story about John Kennedy's first summit with Nikita Khrushchev back in his first year in office. He meets with Khrushchev. Khrushchev cleans his clock.

OBAMA: Yes.

STEPHANOPOULOS: Kennedy walks out and knows that's exactly what's happened. I know there are no perfect analogies, but what's the moment, in the last eight months, where you took a step back and said, "Wow, I'm going to have to step up my game"?

OBAMA: You know, it's an interesting question. I -- I mean, I don't mean to be immodest here, but I don't think I've had that moment with a -- with a world leader, where I said, "Gee, you know -- you know, we've got to really tighten things up." I think there have been times where I have said, "I've got to step up my game in terms of talking to the American people about issues like health care." I mean, I think, during this whole health care debate, I've -- there have been times where I've said...

STEPHANOPOULOS: You lost control?

OBAMA: Well, not so much lost control, but where I've said to myself, "Somehow I'm not breaking through." And -- and it's not -- you know, I know my critics would just say, "Well, it's because you -- you know, the plan is just, you know, the -- the wrong one."

But it's -- that's not so much it. It's -- this has been a sufficiently tough, complicated issue with so many moving parts that, you know, no matter how much I've -- I've tried to keep it digestible, you know, it's very hard for people to get their -- their whole arms around it.

And that's been a case where I have been humbled, and I just keep on trying harder, because I -- I really think it's the right thing to do for the country.

STEPHANOPOULOS: Thanks very much for sitting with us.

OBAMA: Great to talk to you. Thank you.