Fred Thompson on Bloomberg TV

PETER COOK: Joining me now here on the campaign trail, Republican presidential candidate, Fred Thompson. Senator Thompson, thanks for the time.

FRED THOMPSON: Thank you. Good to be with you.

MR. COOK: We appreciate you joining us here on Bloomberg.

Let me ask you first of all, if I could, about the economy. You have said that national security is the number-one issue facing the country right now. Where does the economy rank after that?

MR. THOMPSON: Number two, yeah.

MR. COOK: And what is it right now you see in the U.S. economy? Are you confident in the state of the economy? Not everyone is.

MR. THOMPSON: Yeah, I am. I think that we - the underlying factors there that the experts look at, as best I can tell, are strong. We are part of a good world economy now, and I think as long as our fiscal policies and our monetary policies make sense, that we'll continue to be strong. I think it's going to be a very bad time over these next couple of years for a tax increase, and that is what concerns me most.

MR. COOK: President Bush's handling of the economy? What sort of grade would you give President Bush?

MR. THOMPSON: I think that he would get an A as far as tax cuts are concerned. And I think he'd probably get a C-plus as far as spending is concerned. I wish he'd done better on the spending side of the ledger. I think he's doing quite good now with some of the bills that are coming across his desk. But we've got some long-term problems that he has tried to highlight in times past in terms of Social Security that are going to overtake us if we don't do better on the mandatory side of things. They don't just have to do with the everyday fiscal policies but have to do with the locked-in entitlement programs that we're facing.

So as we're concerned day-to-day with what we're doing to affect the economy in terms of fiscal policies, we have to really understand that a little bit further out, we have some drastic things that are going to happen to our economy if we don't get a handle on our mandatory spending.

MR. COOK: I know you've talked about some of these entitlement programs. You were the last one into the race, yet you've been given credit for being the first to talk about Social Security. And you've highlighted your own plan to deal with Social Security over the long term. Yet there's still some experts in Washington and elsewhere who say Medicare is actually the bigger problem right now. How are you going to fix Medicare?

MR. THOMPSON: So we hop right off into that? Medicare is a bigger problem. There's no question about it. I think that we would probably do ourselves a lot of good in addressing the Medicare problem if we could prove that we could deal with the lesser problem of Social Security. Social Security is going to go bankrupt. I mean, you consider it a lesser problem because it's somewhat easier to fix, although nobody else has stepped up to apply a fix other than myself.

But once we do that, then we need to do things like the hard choices. I think that we're going to have to ask the more affluent to pay a bigger share of the cost in the future for one thing. There's some other features of our Medicare program that -

MR. COOK: But you're not talking about a tax increase there or you are?

MR. THOMPSON: No, I'm talking about means testing some of our benefits. The deductibility, you know, at what point the person has to start kicking into his own retirement solutions - those are the issues I think that we're going to have to look at first. Tax increases, of course, always the first thing the Democrats look at. They want to means test everything. And 5 percent of our people now are paying about 60 percent of our taxes, so I don't know how progressive they want it to be, but they're in danger of hurting the economy; they're in danger of hurting small businesses and individual entrepreneurs if they keep going the tax increase route.

So we have to look at the spending side of the ledger and doing some common sense things now before we have to really hurt anybody, instead of waiting until later when we'll have to hurt everybody when we'll have drastic benefit cuts or astronomical tax increases or astronomical deficits and borrowing from abroad.

MR. COOK: You've talked already about taxes, and Democrats plans to raise taxes, as you and other Republicans suggest. What about your own differences with Republicans on tax policy? Rudy Giuliani is leading in national polls; Mitt Romney leading here in Iowa. How does Fred Thompson differ from those two when it comes to tax policy?

MR. THOMPSON: I think I'm the only one, for example, who has actively and specifically promoted a corporate tax cut. People have been talking around the edges about that for some time, but I came forth a considerable time ago and talked about it in specific detail. I said that -

MR. COOK: What's a corporate tax rate that is appropriate in Fred Thompson's mind?

MR. THOMPSON: Well, I look at what's going on with regard to our international competitors, and I see that 28 percent would be the norm instead of the 35 (percent) that we have now. We have the second real highest tax rate in the industrialized world. We're only one of two countries that hasn't lowered its tax rate since 1994. All of our competitors are doing that. I mean, they've caught on to the game. And why we haven't done that, I don't know. I see today that some officials in the Treasury once again are saying that we need to do that. And it looks like they're getting closer to a proposal.

MR. COOK: They've also talked about eliminating loopholes, if you will - some of the tax breaks that companies enjoy in exchange for lowering that corporate tax rate. Would you support that?

MR. THOMPSON: No, no, that's what Charles Rangel, I think, is promoting. I'm not sure that the Treasury Department.

MR. COOK: Mr. Secretary Paulson has suggested something along those lines as well.

MR. THOMPSON: Well, today, from what I heard - I didn't see any proposals for offsets so far. I don't think you need to approach it from that standpoint. You're going to have to do something about competitiveness. You're going to have to do something about economic growth. And raising taxes at the same time that you're cutting taxes I don't think promotes either one of those things. So I don't believe in the static accounting that goes on in Washington. I don't believe that you have to raise revenue every time you cut taxes. I think that we're still at a level now where a tax cut in the right way and the right amount is beneficial for the overall economy in terms of economic growth. And as far as the corporate tax rate is concerned, it's certainly beneficial to us from a competitiveness standpoint. We just stick out like a sore thumb in terms of the high corporate tax rate.

Other than that, a lot of us are saying pretty much the same thing now in terms of lower taxes. I guess the difference is that I had eight years on the national scene with regard to national tax issues, where I was saying the same thing eight years ago, 10 years ago, 12 years ago. When I was in the Senate, we had a chance to pass about four major tax cuts including the one in 2001, which I think in large part helped lay the groundwork for the prosperity that we have right now. So I was walking the walk back sometime ago before others were even talking the talk, even though on most things, except the corporate tax cut, a lot of us are saying the same things today.

MR. COOK: All right, are we going to see more specifics from your campaign over the next few days with regard to tax policy, and do you care to share any with us right now?

MR. THOMPSON: No, we've got a couple of details to work out yet, but I think it's fair to say over the next several days we'll be putting something out that's specific along those lines, and especially will involve a corporate tax cut.

MR. COOK: Let me ask you about the question of income inequality. There are Democrats on Capitol Hill right now still talking about the Bush tax cuts and how they unfairly were tilted towards the wealthy. They'd like to remedy that, at least some of the proposals on Capitol Hill. Do you believe income inequality is a problem in America right now?

MR. THOMPSON: Well, the Democrats always want to focus on the redistribution of wealth. And they don't recognize the fact that people come up through the system in our country and they come from the lower end to the high end - and go often times to the higher end. And the overwhelming majority of people move one direction or another.

And in a free and open economy and in a growing economy, people have the opportunity to make a determination for themselves as to how far they want to go economically in this country. That's not to say that there's some people that don't need some help and some people that can't help themselves; and we have ways to address those particular problems. But you can't just say that the rich are getting richer and the poor are getting poorer in this country. I don't think that that's happening that way. I think all levels are moving up.

The IRS just did a study not too long ago, as I recall, that showed just from the income tax forms that they traced back and looked at over a period of time that people were moving from lower income levels to higher income levels throughout their career in this country, which is what you would expect. So I'm more interested in policies that promote that, that let a small-town boy with very meager prospects - one might think - who grew up in a little town like I did and started working in a factory to have the opportunity to live the American dream, as so many of us have. That's what I want to promote today.

MR. COOK: Let me ask you about a couple other issues, if I could, domestic issues. Energy policy - I looked on your website and there are references to energy policies. There are not a lot of specifics there. I'd like to ask you what as president Fred Thompson would do to try and end America's addiction to oil. And I'll start with one specific. Would you support higher vehicle fuel economy standards?

MR. THOMPSON: No, again, taxes are not the way to go. I don't think that - the cost-benefit relationship is not there, which is what I think we always have to look at. I think in terms of our energy policy in general that we're not going to immediately turn our addiction to oil around. We might as well get over that notion. What we've got to do is have greater diversification, working more toward independence and less dependence on the wrong parts of the world.

There's such problem spots like the Middle East, right now. That's going to involve several things. We're going to have to start doing several things better than we have in the past. I think we're going to have to use our own resources more than we have. We can do that -

MR. COOK: But setting higher fuel standards is not one of those steps?

MR. THOMPSON: No, I don't think so. I think that the effect of that, what that would do to the consuming public in terms of the driving habits, what it would do in terms of the increased money that they would be having to pay, what that would do to the economy, what effect that would have on other parts of the economy, I just don't see the cost-benefit there. But I do see greater protection in a more economic environmentally friendly way than we've been able to do in the past of our own resources. It can't solve all of our problem, but certainly part of it. We're making headway, I think, with regard to the cleaner coal technology.

I think nuclear has got to be put back on the table, alternative, renewables, all of those things have got to be put on the table and we have got to do all of those things simultaneously I think in order to become more diversified.

MR. COOK: Related issue, global warming, how big a challenge is global warming? How big a problem is it, do you think?

MR. THOMPSON: I don't think anybody knows yet exactly how big it is. I think it's something that we have got to get answers to. We know that the globe is warming. We don't know whether or not that is part of a cycle. The -

MR. COOK: Do you think humans are responsible?

MR. THOMPSON: The earth has cooled in times past. This could be a part of a warming cycle that we will come out of some day. I don't know how long it would be. We don't know what extent - undoubtedly humans are contributing to it, but we don't know how much and what percentage. And we do know that unless we get other countries growing large economies, like China and India, to cooperate in any solutions that it's not going to be economically realistic for us to try to do things that would harm our own economy and have very little effect unless they join with us in some kind of a solution. But we have got to do everything that we can to get the answers to these questions, to see the nature of the problem, the extent of it, and what we can realistically do about it.

MR. COOK: Immigration, I know you're up with an ad here in Iowa citing your own views on the immigration issue and the proposal that came out of the Senate a couple of months ago. Again, talk to me about the - contrast your - your background, your history on this issue with that of your opponents, most notably, Mr. Mayor Giuliani and Governor Romney.

MR. THOMPSON: Well, the mayor and my backgrounds are in sharp contrast on some points. Nineteen ninety-six, I was passing a bill outlawing sanctuary cities. The mayor went to court to try to overturn that bill, and fortunately, he lost that lawsuit. Sanctuary cities were outlawed, but we still have them in this country in violation of federal law.

I simply think we are in high-tech-growing economy. We have an economic competitiveness issue that education is going to have to solve in part. It is not going to be in our long-term interests to be bringing millions and millions of people in this country who are lower-tech and lower-educated. That is the economic part of it. There is also a fairness part to people who have played by the rules to become a part of our society. They should not be disrespected. Then there is the national security part. A small amount of material in the wrong kind of hands can destroy an American city. We have virtually open borders. So we have to secure our borders and enforce our laws and stop providing inducements for people to come here such as sanctuary cities and driver's licenses and things of that nature.

MR. COOK: As you know, there are a lot of businesses out there who say they need these workers right now; this is important to the U.S. economy, the workers who are here even right now. If you can secure the borders, what happens to the 12 million illegal immigrants already here?

MR. THOMPSON: Enforcement by attrition. Over a period of time, if you enforce the law, if you secure the border, if you require employers to use a system that they have now called e-Verify so that they can readily determine whether or not someone is legal or illegal. If you do away with sanctuary cities, as is really the federal law, and stop providing inducements for people to come here, over a period of time, the numbers will be moving in the right direction and the problem will greatly rectify itself.

MR. COOK: Let me ask you if I could some political questions before we wrap this up here, specifically your take on what is going on in New Hampshire. I know there is a new poll out today that suggests you may be down to 4 percent support there. What is going on in New Hampshire? Are you putting all of the marbles here in Iowa?

MR. THOMPSON: Well, I'm putting a lot of marbles in Iowa, and we've been spending a lot of time in South Carolina where we are doing very well, usually running first in most of the polls there. We're going to have to wait and see. Every day is a new day. You know, Mayor Giuliani is doing well in the national polls but I'm running second in most of the national polls to Mayor Giuliani. So we're about where we need to be overall right now. We have some strength in places and some weaknesses in places and every day is a new day; you just have to do the best you can. It's very, very hard to handicap these races anymore, especially in a place like Iowa. Howard Dean was the odds on favorite in mid-December, and of course that didn't work out too well for him. And you can say the same thing about some of the early primary states in other parts of the country too. So who knows what to make of it.

MR. COOK: All right, well, we wish you well. Fred Thompson, thanks very much for the time today.

MR. THOMPSON: Thank you. Enjoyed it.

MR. COOK: I appreciate you joining us on "Money and Politics."

MR. THOMPSON: Thank you.