KING: Joining us now is Senator John McCain, Republican of Arizona. He was, of course, the 2008 GOP presidential nominee.

Senator, what did you -- did you like anything in tonight's speech?

SEN. JOHN MCCAIN (R), ARIZONA: Well, I appreciate the president's call for bipartisanship. I appreciate his support for our efforts in Iraq and Afghanistan. But it seems to me quickly lapsed into the BIOB, that's "Blame it on Bush" routine, that's growing a little tiresome.

And I had hoped that he had heard the message in Massachusetts on health care and that is stop, let's start all over, and let's have some real bipartisan negotiations.

Obviously, he didn't get that message.

KING: Speaking of health care, the president did put it up to the Republicans tonight to act. Watch this and then let me have your comment.

(BEGIN VIDEO CLIP)

OBAMA: If anyone from either party has a better approach that will bring down premiums, bring down the deficit, cover the uninsured, strengthen Medicare for seniors, and stop insurance company abuses, let me know.

Let me know. Let me know.

(APPLAUSE)

OBAMA: I'm eager to see it.

Here's what I ask Congress, though. Don't walk away from reform. Not now. Not when we are so close. Let us find a way to come together and finish the job for the American people.

(END VIDEO CLIP)

KING: All right, Senator, what's your response to that challenge?

MCCAIN: Well, if the president or the Democrats had invited us over to sit down and seriously negotiate, they would have heard -- and I don't know how they missed it -- that we have many proposals ranging from medical malpractice reform, which there's none in the Democratic proposal, to buying insurance across state lines, to rewards for wellness and fitness, to establishing risk pools for those with pre- existing conditions, to encouraging health savings account.

I can give you a long list, Larry, of the proposals that we have that get at the issue of costs of health care.

What the president and the Democrats have proposed and has been rejected not only in Massachusetts but around the country is a very big government takeover, and despite what the president said, adding $2.5 trillion to the debt.

The president's proposal -- the Democrats' proposal, the taxes and the benefit cuts start immediately and the benefits don't start for four years. That's Bernie Madoff accounting.

The other issue that I really was disappointed in was the president's solution to the earmarking and pork barreling was to put it all on a webpage. That's -- you know, we all know what earmarking and pork barreling does.

And finally his proposal for next year, 2011, to eliminate $15 billion in spending and meanwhile is proposing another stimulus bill that ranges between $80 and $115 billion additionally on the debt.

It doesn't work.

KING: We'll have more with Senator John McCain right after this. We're back in 60 seconds.

(COMMERCIAL BREAK)

KING: We're back from the rotunda in Capitol Hill with more of Senator John McCain.

You mentioned earlier that he keeps criticizing the Bush administration. You have to admit, John, in all fairness that Obama inherited quite a set of problems.

MCCAIN: Absolutely. And that's one of the reasons why we lost the election. Maybe also because not so great a candidate. But the point is that we let spending get out of control under the Bush administration. We, Republicans. And we paid a heavy price for it.

But the president also promised that he would go line by line, that he would veto bills, that there would be transparency. I mean, tonight when he said that he was going to put further restraint on the lobbyists after the deals that they've been cutting in the White House with the special interests and pharmaceutical companies and others?

I mean, there was two reasons why the people have rejected the president's health care reform. One is because the product they don't like because it's a $2.5 trillion debt on future Americans, but also the process. The cornhusker kickback and the Louisiana purchase and all that unsavory stuff that's been going on. It amounts to bribery.

KING: Senator, there was a part of the speech -- I wonder if you enjoyed it -- when he criticized the Supreme Court for overturning portions of McCain/Feingold, your treasured legislation. How did you react to that?

MCCAIN: Well, obviously, I agreed with the president. I tried to get a look at the Supreme Court justices down there. But it is what it is. And I think the president did raise a legitimate point. And what are we going to do about foreign-owned corporations being involved in American election campaigns. I think that is an issue of some concern.

KING: The president challenged both parties tonight to do a better job. He had this message. I'll show it to you and I want to get a comment. Watch.

(BEGIN VIDEO CLIP)

OBAMA: The Republican leadership is going to insist that 60 votes in the Senate are required to do any business at all in this town, a super majority, then the responsibility to govern is now yours as well.

Just saying no to everything may be good short-term politics, but it's not leadership. We were sent here to serve our citizens not our ambitions.

(END VIDEO CLIP)

KING: Is that a good point or not, John?

MCCAIN: Well, I think it's important to recognize that the president campaigned on a change in the climate in Washington, that he would have C-SPAN cameras in, that there would be transparency, that there would be bipartisan negotiations.

I can assure you that has not happened. And so having been shut out of the process, of course, we resist legislation being jammed down our throats. And so my suggestion is, as the American people have said, stop your health care reform, go back from the beginning, and fix the biggest problem, which is the cost.

Sit down across the table and negotiate seriously. That has not happened. And therefore, the climate has not changed in Washington. In fact, it's gotten worse.

KING: Are you optimistic that, based on this, and the election in Massachusetts, that it will change?

MCCAIN: I hope that the president will -- I would love to have heard him say tonight on next Monday I'm going to call Republicans and Democrats over to the White House and we'll sit down and try and address some of these issues together.

He didn't do that. But I think we Republicans have our work cut out for us. We got to propose a positive agenda for America. We have to be careful stewards of our -- of the dollars and practice fiscal responsibility. We've got our obligations. But we want to work with the president and with the Democrats. So let's start all over again and see if we can do it. And we could begin by starting all over with health care reform.

KING: Do you favor throwing out Don't Ask, Don't Tell?

MCCAIN: I think it's a serious mistake. We're in two wars. Don't Ask, Don't Tell has been a very effective policy and one that has worked. The evidence of that is the best trained, best equipped, most professional military we've ever had.

And I just think it would be a very serious mistake when we're in two wars to make an abrupt policy change.

KING: Would you change it down the road?

MCCAIN: Well, I would rely on the Joint Chiefs of Staff, our military leadership. Those are the ones we entrust the lives of our young men and women, and have them do a study and have them come up with recommendations as to whether this policy needs to be modified or not.

I would place great credence on that. Right now, the military leaders I know say that the policy is working and they don't want it changed.

KING: All right, he said that the war in Iraq is coming to an end and the troops are coming home. And he said in Afghanistan he's confident they will succeed.

I gather you agree with him in both of those areas?

MCCAIN: Well, I would have liked if he'd said we have achieved victory in Iraq and the surge succeeded in Afghanistan. I also would have liked him to emphasize a little more the fact that it's going to be tough.

Beginning in March, it's going to get really tough and the fact is that we're going to stay the course there.

Our allies and people in the region are very nervous about his statement that in the middle of 2011, we would be withdrawing. I think they need some reassurance because, as you know, they have to stay in the neighborhood if we left. And we left once before.

KING: Why the beginning of March?

MCCAIN: Because the weather gets a lot better. And the Taliban activities will be stepped up, unfortunately.

KING: Senator, are you going to be -- you always were the kind of bipartisan person who put principle above party and the like. And there are some who say that you've been in this first year of Obama contrarian.

Do you think that you've been a little aggressive on the other side?

MCCAIN: Well, the stakes are very high. But you know, just yesterday Senator Evan Bayh and I had a package of proposals to reduce the deficit, to eliminate earmarks and pork barrel spending, and get our financial ship right.

I worked with Senator Levin on defense acquisition reform. I continue to work with Democrats on the committees and on a number of policies ranging from Indian affairs to national defense.

So I'm very proud of my record, but I again say that when you are in a majority and you do not respect the views and input of the minority, you get a predictable reaction, Larry.

KING: Thanks, as always, Senator. See you down the road.

MCCAIN: Thank you, my friend.

KING: Senator John McCain.