CROWLEY: I'm Candy Crowley, and this is STATE OF THE UNION.

Joining me now here in Washington, Republican Senator John McCain of Arizona, on your maiden voyage here on the show with me. So thanks for joining us.

MCCAIN: Thank you, Candy.

CROWLEY: Before we get to domestic policy, I want to talk to you about North Korea. Try to give our audience some perspective on how dangerous this is. And I ask because it seems to me we go through this periodically. All of the sudden North Korea, you know, tests a missile, fires into South Korean at least water territory.

Is this any more dangerous than anything in the past? And what does that mean to the average American?

MCCAIN: Well, I think it's probably more dangerous in that the North Koreans have enhanced capability, both missile and nuclear capability. But it's also a lesson that continued appeasement of North Korea, which we've been doing basically under Republican and Democrat administrations since 1994, with the "agreed upon framework," we've given the North Koreans over $1 billion worth of aid and assistance in the last 15 years or so, and based on the premise that we would all get together and negotiate.

It seems the purpose of everything is to get the North Koreans to the table. The North Koreans' only claim to their position on the world stage is their nuclear capability. And they have a terrible, most repressive, oppressive regime in the world. They have hundreds of thousands of people in slave labor camps. And all of that seems to be sacrificed in the altar of, quote, "negotiations."

So long ago, we should have put a significant pressures on the North Koreans. Even in the Bush administration we freed up a $25 million bank account and took them off the terrorist list.

CROWLEY: But they've been sort of immune to...

MCCAIN: So could I just finally say, the key to this, obviously, is China. And unfortunately China is not behaving as a responsible world power. It cannot be in China's long-term interest to see a renewed conflict on the Korean Peninsula.

We've got to understand that China is not what we want it to be, but is not playing a responsible role on the world stage, much less in -- on the Korean Peninsula. They could bring the North Korean economy to its knees if they wanted to. And I cannot believe that the Chinese should, in a mature fashion, not find it in their interest to restrain North Korea. So far, they are not.

CROWLEY: You have called it what North Korea has done as unacceptable. You have called on China to react strongly. They have said, let's get the group of six together, not for talks on nuclear -- on North Korea's nuclear capability, but about this, let's have an emergency meeting. Is that a good first step?

MCCAIN: I think it would be a fine first step. But does -- do we really think that there has been -- that this long history of confrontation that the North Koreans have practiced is going to come to a halt without significant penalties on North Korea?

CROWLEY: From China.

MCCAIN: I think it's time we -- yes. I think it's time we talked about regime change in North Korea, and I do not mean military action, but I do believe that this is a very unstable regime. They're now passing on to -- from the "dear leader" to what we call him the "sweet leader," whatever it is, 27-year-old four-star general.

So, but, and we can, we can have a peaceful resolution to this issue. But the North Korean regime is not one that's going to abandon the nuclear power status. They are now seeking recognition from us that they are a nuclear nation. That's not in our interests.

CROWLEY: I want to move on to Afghanistan, but to button this up, would you...

MCCAIN: Just one other thing. The Chinese -- now the United States is engaged in military operations with South Korea in the Yellow Sea. The Chinese have claimed the Yellow Sea as a special economic zone.

We have to understand that China is not behaving in a responsible fashion as a world power, and we have to make adjustments to our policies regarding China.

CROWLEY: And just to button this up, are we on the verge -- is the Korean Peninsula on the verge of war or is this something that is more long-term problem?

MCCAIN: I think if past behavior holds true, the North Koreans will walk up to the edge and then step back and try to get more concessions and more money and more economic aid, and more jobs for North Koreans sponsored by South Korea. I'm not sure that the South Koreans are going to go along this time.

CROWLEY: Let me ask you about Afghanistan. New report out, the one that they give twice a year, they called military and security gains "fragile." They said, "the efforts to reduce insurgency capacity in Pakistan has not produced measurable success." They said, "the Taliban has sufficient capability and support to pose a threat to the viability of the government, and if the security situation erodes," that quickly the security will erode -- "quickly the stability in the region will erode."

We've been there nine years. At this point isn't it a legit question to say, you know, can we really do this? Because it seems to grow worse.

MCCAIN: I think that's why we're going to have an assessment next month in December, as you know. I just came back with Lindsey Graham and Joe Lieberman. We have made significant military successes. In the clear and hold area, we have been making -- thanks to General Petraeus and the brave young men and women who are serving. We are making great...

CROWLEY: Well, it doesn't sound like we're making progress.

MCCAIN: We are. I mean, I don't have any doubt that we are in that area. There are two major problems right now. One of them is corruption at the highest levels of government. They have a corrupt attorney general. This latest business about the elections is really unacceptable.

And a sanctuary in Pakistan, the Pakistanis are still -- and the armed military with the ISI are still having businesses with the -- cooperating with the Haqqani network and other Taliban elements within Afghanistan.

You cannot allow the enemy sanctuary. These are significant problems. And they need to be...

CROWLEY: And they've been significant problems, though, for years. So you've got to kind of wonder, are we ever going to make a dent in this? And let me just ask as a last part of this, does a 2014 agreed upon deadline for the removal of combat troops by both NATO and the U.S. forces, is that helping?

MCCAIN: It's a dramatic improvement over the 2011 date that the president had been sponsoring, which was an enormous impediment to progress because people were adjusting to us leaving in 2011. I'm very happy to see 2014.

Let me just say, if it wasn't a corrupt government, if we didn't have the trouble with Pakistan that we have, things would be a lot better in Afghanistan. And remember it has only been since the president announced at West Point that we would really increase the number of troops there, and General Petraeus's appointment, with all due respect to General McChrystal, that we have really started to make some improvements.

We cannot afford for Afghanistan to return to being a base for attacks on the United States of America. And we should never forget that.

And finally, could I just mention, Candy, the Taliban are not popular. The Taliban are hated by most of the people of Afghanistan. It's not as if they're a popular movement. CROWLEY: But they're scared of them, and so they don't totally...

MCCAIN: Of course they're scared. They're scared to death of them. But to say that the Afghan people would welcome them with open arms is just, I mean -- and think of the women's rights issues and all of these other cruelties that the Taliban have inflicted upon the people of Afghanistan. CROWLEY: Let me ask you about "Don't Ask/Don't Tell." It's going to come up, you're going to have testimony before the Armed Services Committee. You have criticized what you believe will be in this upcoming report about how the military feels, saying, no, this was about how are we going to implement it, not about how the military feels.

I know you have got a letter from Robert Gates, defense secretary, which said in part, to you: "I do not believe that military policy decisions should on this or any other subject be subject to referendum of service members."

CROWLEY: In other words, you know, what the service members, how they would vote is sort of immaterial to what we're trying to do. Doesn't he have a point?

MCCAIN: Well, I think he certainly has a point. I would also certainly say that we should remember where this all started. There was no uprising in the military. There were no problems in the military with don't ask, don't tell. It was a critical...

CROWLEY: No, it (inaudible) who had a problem.

(CROSSTALK)

MCCAIN: No, it wasn't. Because it wasn't a problem because you didn't have -- it's called don't ask, don't tell. OK? If you don't ask them, you don't ask somebody, and they don't tell.

(CROSSTALK)

MCCAIN: And it's an all-volunteer force. I understand your point of view, and I understand the point of view by the majority of the media, but the fact is, this was a political promise made by an inexperienced president or candidate for presidency of the United States. The military is at its highest point in recruitment and retention and professionalism and capability, so to somehow allege that this policy has been damaging the military is simply false.

So the fact is that this system is working, and I believe that we need to assess the effect on the morale and the battle effectiveness of those people that I -- those young Marines and Army people I met in forward operating bases that are putting their lives on the line every day.

This is an all-volunteer force. And if we want to ensure morale and battle effectiveness is maintained, that's why people like the commandant of the Marine Corps has come out against repeal. Now, if you want to call him a racist and others, and sergeants and others that I have...

CROWLEY: We should also point out that the defense secretary and the head of the Joint Chiefs of Staff think it's a good idea.

(CROSSTALK)

MCCAIN: And they have said that, and the four service chiefs, the four service chiefs have all had reservations to one degree or another. Now I have great respect for the secretary of defense...

CROWLEY: Isn't integration required...

(CROSSTALK)

MCCAIN: ... and I have great respect for the secretary -- for the chairman of the Joint Chiefs of Staff. I have great respect for the service chiefs and I have great respect to the men and women who are serving, particularly the sergeants and the chief petty officers, who are the ones that make the military work.

CROWLEY: Integration of any sort has always come -- whether it's racial, whether it's gender -- doesn't it require leadership rather than followership? And in other words, does -- yes, it matters how the military feels, but don't you need to lead when it comes to a matter of integration, which definitely was difficult?

MCCAIN: Look, we're in two wars. We're in two wars. I ran into a master sergeant in a forward operating base outside Kandahar, who had five tours in Iraq and Afghanistan. He said -- and a number of them came to me and said, look, we fight together, we sleep together, we eat together. I want to know the effect of our ability to win this conflict. That's what we're saying. I want to know the effect on battle effectiveness and morale, not on how best to implement a change in policy. I don't think that's a lot to ask when we have our young men and women out there serving and fighting, and tragically some of them dying.

CROWLEY: I have less than 30 seconds here. But I have to ask you about Sarah Palin. New book out that you're going to read sooner or later. She's going to Iowa, she's going to South Carolina. The big game is, is she going to run for president, isn't she going to run for president. You know her probably better than any politician who does. How do you read what's going on?

MCCAIN: I read I think she's keeping her options open, and I think she should. I think she is an incredible force in the American political arena.

CROWLEY: And a divisive force, would you agree?

MCCAIN: I think that anybody who has the visibility that Sarah has is obviously going to have some divisiveness. I remember that a guy named Ronald Reagan used to be viewed by some as divisive.

CROWLEY: So you sort of -- do you see her as a parallel? MCCAIN: No, I think she's doing a great job. I think she's doing a great job. I think she has motivated our base. I think she had a positive impact on the last election, and I'm proud of her.

CROWLEY: Senator John McCain, there is never enough time. Thank you so much.

MCCAIN: Thanks for having me on.

CROWLEY: I appreciate it.

Up next on this holiday weekend, an interview we did earlier with two lawmakers who are thankful to be leaving Washington for good.

(BEGIN VIDEO CLIP)

OBEY: The biggest rip-off of the middle class by the elite that I think I've ever seen.

DORGAN: This country needs some really good decisions these days on tough issues.

(END VIDEO CLIP)

(COMMERCIAL BREAK)

CROWLEY: In another year, with another crop of newbie lawmakers saying they want to fix Washington, we wanted to talk with two men who have tried to do that for years and now say they've had enough. David Obey came to Congress from Wausauw, Wisconsin, when Richard Nixon was president. As the third longest serving member of the House, he has enormous clot. He has played the harmonica for years in a bluegrass band known as the Capital Offenses.

Ronald Reagan was president when Byron Dorgan was elected to represent North Dakota. He rose to become a member of the Democratic leadership team. He has been a fierce critic of the financial community, one of only nine senators to vote against President Clinton's bank deregulation act.

His latest book is "Reckless: How Debt, Deregulation and Dark Money Nearly Bankrupted America." Dorgan wants to teach.

Two men with 70 years of service in Washington are headed home. A farewell interview with the senator and the congressman when we come back.

(COMMERCIAL BREAK)

CROWLEY: Most of the attention in this year's midterms has been on the new incoming lawmakers, most of them Republicans, who will shape policy over the next two years and maybe beyond.

CROWLEY: But we are also intrigued by the outgoing lawmakers, the ones voluntarily walking away. This year, 12 senators and 26 congressmen decided not to run for re-election. Two of them join me here, Wisconsin Congressman David Obey and Senator Byron Dorgan of North Dakota.

Gentlemen, thank you both.

OBEY: Thank you.

CROWLEY: I want to talk a couple of issues with you here. Because it's very rare that you get politicians on that you know they can -- they are free to speak. So feel free to chime in on these -- on these issues, because you're short-timers, as we say.

The tax cuts: you all have a month and a half, not quite. What's going to happen?

OBEY: I don't know what's going to happen. I know what I think should happen. We have had the greatest surge upward of wealth on the income scale in the history of the universe. You've had a huge amount of money transferred from the middle class to the top dogs. You've had the biggest rip-offs of the middle class by the elite that I think I've ever seen.

And under those circumstances, I don't think we ought to be spending $750 billion in order to give people who make over 250,000 bucks another tax cut.

CROWLEY: Although it will be keeping their tax cut, but nonetheless, when you look at the current state of play, what do you think is going to happen?

DORGAN: Well, those tax cuts were put in place -- I didn't vote for them, but they were put in place in order to return 10 years of surplus that was expected but never -- never materialized. There were no surpluses, only deficits.

And my own view is that we should not have any permanent extensions. I would extend up to $250,000 for two years, only those folks, and then at two years, take a look at it and see what does the economy need now?

More important than the question of who gets tax cuts during wartime is what do we do to fix this federal budget deficit and put the country back in shape so that we have a better future? CROWLEY: But given the state of play -- I mean, I know you both would like to keep the tax cuts in place for the middle class, which is defined as $250,000 and under. The Republicans are pushing hard for everyone to keep their tax cuts in place, at least temporarily. They'd like them permanent.

What -- you -- you have sat in the Senate and you have sat in the House for a very long time. I just know you can look at this and know what's coming.

OBEY: But -- but the fact is, people over $250,000 in income would still get a tax cut. They would just be capped so the size of their tax cut stops after you -- after they get to $250,000 income.

CROWLEY: Right. DORGAN: What's likely to happen is there will be an extension of the tax cuts for everybody for a period of time. I don't know what that might be. But that's the wrong remedy for the country. I mean, to give someone who earns $1 million a year a $104,000 a year tax cut at a time when we have a $13 trillion debt, $1.3 trillion annual deficit and people at war, that's absurd. That makes no sense.

CROWLEY: Let me -- let me turn you to the debt commission. We have a brand new debt commission -- you've seen a couple of them in your time, I think -- that are saying, listen, we've got to look at the three things that cost us the most, the Defense Department, federally funded health care of Medicare, Medicaid, that CHIPS program, as well as Social Security. This is another throw-away report?

DORGAN: Well, I hope not. I mean, this...

CROWLEY: But what do you think?

DORGAN: I don't even know whether it will get out of the commission. It needs 14 of 18 votes to come out to the Congress, but this is serious stuff. I mean, we -- we are on an unsustainable path for the long-term, and we have to find a way to address it.

And that deals with spending. It deals with additional revenue and a whole series of things. But my hope is that the serious work that's done by this commission and others will result in this country finally finding its footing and putting itself on track for a better future. But at the moment, if we don't do that, we're in -- we're in long-term serious trouble.

CROWLEY: What do you make of the earmark movement? That is, no longer will congressmen or senators be able to put into legislation things that are earmarked specifically for a library or a bridge or whatever -- whatever it is. Republicans say, let's just get rid of that.

OBEY: Well, let me -- I find it interesting that the most conservative members of the Congress are those who want to have an absolute transfer of power to the executive branch of government. Having said that, as chairman of the Appropriations Committee, I don't care what happens to earmarks. I'll play that flat or round. You can keep them or -- or dump them.

The fact is, they are inconsequential in comparison to the other problems we face, at less than half a percent of the budget. And we have made substantial reforms in the way they are handled. You can no longer ask for an earmark anonymously under the table. You have to take full, public credit for it. The committee has to have time to review it, but if the Congress is hell-bent on turning over that power to the president, they'll have -- they'll have to live with it.

CROWLEY: And you agree with the same thing, right, that giving this up, sort of, cedes power to the president?

DORGAN: It's a complete charade. You can get rid of every single earmark. It's not going to change one cent in federal spending. So it's just -- it's a charade trying to direct attention over here, when the big issue is an unsustainable fiscal policy, put in place largely by the 2001 tax cuts. Most of that benefit went to the wealthiest Americans, and here is where we are.

But, you know, it is -- it is not honest to take a look at earmarks and say this is part of the fiscal policy. The problem -- it is not. It just isn't. There are plenty of problems that we have to confront, but that is not it.

And let me just mention as well, there's no preordained destiny for this country to always do well, to grow and to succeed. This country needs, it seems, some really good decisions these days on tough issues. And trying to direct attention to things that don't matter is not going to be helpful to this country.

CROWLEY: I want to ask you both to stick with me. We're going to talk about your -- your swan songs to Congress. We'll be back in a minute.

(COMMERCIAL BREAK)

CROWLEY: We are back with Democratic Congressman David Obey and Democratic Senator Byron Dorgan.

I want to take a quick trip down memory lane and have you listen to this.

(BEGIN VIDEO CLIP)

REP. ALAN GRAYSON, D-FLA.: Die quickly. That's right, the Republicans want you to die quickly if you get sick.

(END VIDEO CLIP)

(BEGIN VIDEO CLIP)

REP. ANTHONY WEINER, D-N.Y.: It's Republicans wrapping their arms around Republicans rather than doing the right thing on behalf of the heroes. It is a shame, a shame!

(END VIDEO CLIP)

(BEGIN VIDEO CLIP)

REP. JOHN A. BOEHNER, R-OHIO, HOUSE MINORITY LEADER: Hell, no, you can't! Have you read the bill? Have you read the reconciliation bill? Have you read the manager's amendment? Hell, no, you haven't!

(END VIDEO CLIP)

CROWLEY: Going to miss it?

OBEY: Not that.

(LAUGHTER) CROWLEY: This is -- that's pretty remarkable. I mean, has it -- listen, you've been in Congress since Richard Nixon. Is it truly worse now than at any other time you can remember, in terms of the two parties?

OBEY: I don't think so, because when I first became politically conscious, it was the era of Joe McCarthy, and nothing was as bad as the spate of McCarthyism that this country went through.

CROWLEY: I ask because you seem so...

OBEY: Nonetheless, it's...

CROWLEY: ... discouraged about it in some of the things you've said.

OBEY: Well, I am discouraged about it because I think that money is rapidly taking over politics. When I got elected the first time in 1969, I spent $45,000. My opponent spent $65,000, and I won.

Today you've got House seats that cost $4 million. That means instead of members being able to spend time learning these issues, learning to know about each other, they spend their time dialing for dollars. That's not a constructive change. And the Supreme Court has made it abominably worse.

CROWLEY: Let me ask you, Senator, sort of along the same lines. This is -- I want to play you something that Congressman Obey said during his retirement press conference, and have you take a listen.

(BEGIN VIDEO CLIP)

OBEY: All I do know is that there has to be more to life than explaining the ridiculous accountability-destroying rules of the United States Senate...

(LAUGHTER)

OBEY: ... to confused and angry and frustrated constituents.

(END VIDEO CLIP)

CROWLEY: Senator, I think he's talking about you.

(LAUGHTER)

DORGAN: Yes, well, Congressman...

CROWLEY: Are you...

DORGAN: Congressman Obey has always been one of the more colorful members of Congress, actually.

No, listen, we heard him loud and clear over on the Senate side. It's just that we didn't have enough votes to get things done. Because in the Senate, as Congressman Obey knows, regrettably everything these days takes a supermajority or 60 votes. But I fully understood the frustration and have heard it from him and others in the U.S. House.

Look, I think all of us should want, and the American people should expect and deserve better from the Congress.

CROWLEY: There's so much left undone, as you just talked about, Senator, and as you know in the economy, in sort of long-term debt reduction, that kind of thing. Why did you decide, each of you, not to stay and fight?

DORGAN: Well, I have served in Congress 30 years. I've served in the state capital in elected position 10 years before that. I've been in statewide elective office continually since age 26. And I just -- I want to have another chapter in my life.

You know, I'm not leaving because I'm upset, because I don't like the Congress. I have great respect for the Congress. It has been a gift to me to be able to serve, given to me by the people of North Dakota.

An old guy called me, he was in the hospital after I announced, and he could barely talk, but he said, Dorgan what in the hell are you doing? Well, I said, you know, I'm just -- I want to do some other things in life. And having served 30 years, I just think for me it's time to move on.

I want the Congress to succeed, however. This country needs the Congress to work well.

CROWLEY: Congressmen Obey, you were a little more frustrated than Senator Dorgan is copping to, anyway.

OBEY: Well, I've been here 42 years, and before that six years in state legislature. I think almost 50 years is quite enough, number one.

Number two, as I said earlier, I detest what money is doing to politics. And I am frankly fed up with trying to convince people that we should do something to deal with the fact that we have the greatest maldistribution of income in the history of this country.

People attack the Democratic Party for being redistributionist. In fact, you have had the largest redistribution of income up the income scale in the history of the country the last 30 years. And I think we simply -- it's time for new blood and fresh legs to take on that fight anew, because until we do that, we are not going to build the kind of country that can continue to lead the world.

CROWLEY: And if you could fill in this short sentence for me, after I leave Congress, I am most looking forward to? OBEY: Playing more music and perhaps increasing my allotment of gin and tonics from time to time.

CROWLEY: Sounds good, we'll come see you.

DORGAN: I'll stay away from the gin and tonics.

(LAUGHTER)

DORGAN: I'm interested in a lot of things. But more time, more time to do interesting things.

CROWLEY: Senator Dorgan, Congressmen Obey, thank you so much for being with us. Good luck.

OBEY: Thank you.

DORGAN: Thank you.