For Immediate Release
Office of the Vice President
October 30, 2006

Interview of the Vice President by Lawrence Kudlow, Kudlow & Company, CNBC News
The Vice President's Ceremonial Office

9:51 A.M. EST

Q Mr. Vice President Cheney, welcome back to "Kudlow & Company." We appreciate it very much, sir.

THE VICE PRESIDENT: It's good to be back on the show, Larry.

Q Let me begin with this paradigm. We have had a splendid stock-market rally in the last three months, breaking records almost on a daily basis, and at the same time, Republican polls have been falling. There's a chance the Congress, maybe the House, maybe the Senate, will go Democrat. Many in the market believe divided government is what's driving stock prices higher. Do you agree with that assessment?

THE VICE PRESIDENT: I'm reluctant to try to explain the stock market, other than to say I think it reflects the overall health of the economy. And I like to remind people that it's a Republican President and a Republican Congress that put in place those tax cuts that, frankly, are at risk in this election. I think if Charlie Rangel ends up as chairman of the Ways and Means Committee, he's said as much, that he doesn't believe there's a single one of the Bush tax cuts that ought to be extended. And I think that would be bad for the economy. I don't know if the stock market would like it. I don't think they would.

Q Now Mr. Rangel -- this is a very interesting discussion, Mr. Rangel apparently was on the air this weekend, I guess, CNN, heaven forbid. And he is saying he has no intention to roll back the investor tax cuts on capital gains and dividends. He said that would be bad policy and bad politics. Your response to Mr. Rangel?

THE VICE PRESIDENT: Well, maybe he's been listening to my speeches out there, but I think that the fact is that -- the thing that people have to understand, Larry, is Congress has to act affirmatively to pass legislation in order to keep those rates where they are. If they don't act, the new rates we put in place are going to be replaced by the old higher rates. That is to say, these tax cuts are sunsetted. And if there's no action by Congress -- if they don't actively pass legislation, then there'll be a big rate increase.

So if a man like Charlie Rangel were to be chairman of the committee, and sitting there with the gavel, all he has to do is not act, just don't call up the legislation, and there'll be a big tax increase. That's the thing that I think people need to understand.

Q Now, again, coming back to the stock-market rally, almost everybody I talked to believes that there will not be higher taxes, at least for 2007 and probably 2008. That is the generic view. No matter what the composition of the new Congress -- Democrat, Republican, 50/50, I don't know what the options are, can you tell us that you will oppose any tax increases? Will you in effect take the no-new-tax-hike pledge?

THE VICE PRESIDENT: Well, I will, but the President is the one that obviously has got the pen, and he certainly supports that same proposition.

Q Will you recommend any vetoes, if there's any tax hikes --

THE VICE PRESIDENT: We've been very clear that we want to extend the tax cuts we've put in place. The 15-percent rate on dividends and capital gains has been, I think, absolutely crucial to the economy. Reducing the marriage penalty, increasing the child credit, reducing death taxes, all of those things have been a vital part of our program. We put them in place from the first year we got here and then in '03 again.

My vote in the Senate is what passed that '03 tax package because it was, in fact, a tie vote. The Democrats overwhelmingly opposed those measures. We've supported them. And as long as we're here, you won't see legislation passed to raise those taxes. The fact of the matter is, if we were not here and the Democrats were in control, then there would be a very real increase and a very real prospect of an increase of taxes.

Q Now I interviewed Miss Nancy Pelosi a week ago on CNBC "Kudlow & Company." She said the Democrats, if they win, will push for a balanced budget. She said the bulk of the emphasis is going to be on spending restraints. She said taxes, only as a last resort, and they intend to put in something called pay as you go: taxes as a last resort, balanced budgets. Your thought on Ms. Pelosi's agenda?

THE VICE PRESIDENT: I don't think she's running on that platform in San Francisco. Her district is not one that's traditionally supported that proposition, and I don't think it's representative of where the Democratic Party has been over the years. And I think their record is abundantly clear.

The fact of the matter is the changes that we put in place since we came in have been vital in the tax area. The Democrats have been in support of raising taxes, not lowering them. I think we look at spending, we, in fact -- we set a goal of cutting the deficit in half by 2009; we made it by 2006. That happened directly as a result of those tax cuts because cutting taxes, in fact, stimulated the economy, stimulated growth, and generated more revenue for the federal government.

And I think you'll find, consistently, if you take all the votes by Democrats in the Congress and put them alongside what has become law under the Republican administration, that they have consistently supported a higher level of spending on nearly every program.

Q But one doesn't hear Republicans calling for a balanced budget anymore. And correct me if I'm wrong, but I don't recall either the administration or the leadership in Congress calling for a spending limitation. In other words, you could have a spending limitation pay as you go, leading to a balanced budget. I mean is it possible in this election, the Democrats are stealing the Republicans' bacon on the whole balanced-budget issue?

THE VICE PRESIDENT: Well, they can try, but the fact is, of course, is we've had some extraordinary requirements we've had to meet. We've had to fund all of the homeland security improvement since 9/11, which has been very expensive obviously; two wars ongoing major expenditures for defense. At the same time, though, Larry, we've actually been reducing the amount of government as a percentage of gross -- of GDP. We're back down now to a little over 18 percent. It's lower than the historical average. The fact is we have done a lot to exercise restraint in terms of spending, and especially if you look at spending as a percentage of GDP, we're in great shape.

Q Let me switch gears, go to a quick business question, you as a former CEO and so forth. Another headline in the papers this morning about abuse of backdating stock options in the corporate world, something like 46 CEOs and directors have had to leave their positions. Now there's new evidence surfacing that some of this backdating was done as a tax dodge. Your thought here? I mean we still don't seem to have gotten the ethical-moral message out to CEOs. Is that a problem?

THE VICE PRESIDENT: Apparently it is a problem. I was surprised to see how widespread that practice apparently is -- and waiting to see what the final outcome is. But, obviously, it looks like there are a very large number of firms that were involved in backdating options, and it strikes me that that was obviously inappropriate.

Q And going beyond that, do you have any thoughts on administration policy for the regulation of hedge funds, the regulation of private equity funds? I think all of which kind of comes out of this CEO ethical-type issue which, for some reason, still seems not to be resolved. Thoughts on additional regulations.

VICE PRESIDENT CHENEY: Well, I'm reluctant to see additional regulation. In general, I think -- I think you can make a case that Sarbanes-Oxley went too far. The fact of the matter is, the things -- when we had, for example, Enron and WorldCom, the problems that developed from the standpoint of those companies, those activities were illegal before there was any additional regulation put in place. People have been prosecuted; people are going to jail for the crimes they committed.

But we have to be very careful about slapping on new regulations or trying to respond to the political pressures of the moment by making life even more burdensome than we have. And I am generally not a big advocate of regulation. You need a certain amount, obviously, and you need a certain amount of oversight by government authorities, but we have to be very careful here not to choke off the creativity and the entrepreneurial spirit of the American economy.

Q Ms. Pelosi told me during our interview that if they win, the Democrats want to relieve some of the Sarbanes-Oxley over regulation pressure. Is this another case where they might be stealing Republican bacon?

VICE PRESIDENT CHENEY: We'll be happy to work with them on it. I think -- I do think there needs to be some work done in that area.

Q Let me turn, sir, if I may towards foreign policy, briefly. Of course, Iraq -- Iraq criticism is a huge issue in this election. But you know, it strikes me, there's a lot of people out there that actually support the President's mission. They're frustrated because we don't seem to be winning the war, and a lot of people would like to win this war. And therefore, I want to ask you, is there evidence coming? Can there be evidence? Where's the U.S. Grant at Vicksburg kind of victory that people, like myself, who want to win the war, can carry forward? You know, the victory at Midway Island in World War II in the Pacific, what can you say to people that support the administration, but are frustrated because they want to win, not just back out of Iraq?

VICE PRESIDENT CHENEY: Well, it's -- part of the difficulty, of course, is the nature of the conflict itself. It's just different than World War II, or the Civil War. You don't have an enemy army in terms of masked tanks or naval vessels out there, uniforms, or traditional kind of conventional conflict that we've seen in -- much of our history. This is new. It's different. These are terrorists, these are people that hide in the shadows, that meld into the civilian population. They prosecute their conflict by violence on civilians. It's a whole different proposition than we've had to face before.

What you look for, as milestones for success in terms of what's happening in Iraq, for example, is the extent to which we make progress getting the Iraqis to take responsibility, not only for governance, and for running their own political system, but also for taking on more and more of the security work.

Now over time, there's going to be probably a continued level of violence for some considerable period of time in Iraq. But we have made progress on the political front in terms of -- been there now a little over three years, we've had three national elections, a constitution written, there's a new government in place in Iraq. They've only been in business about six months, but they are making progress. They have taken on more responsibility, especially in terms of governance. We do now have about 300,000 Iraqis trained and equipped as part of the security force. That wasn't true a year or two ago.

There is progress. It's just -- you're not going to see the kind of thing, as you say, a victory like Midway in World War II, where we sank all the enemy carriers, or a surrender ceremony at the end of the war. It's the kind of thing where you have to keep grinding it out day after day after day. It's tough. It's difficult, especially for the young men and women who are prosecuting the war on our behalf. But it's the right thing to do.

Q Senator McCain, over the weekend, was up in New Hampshire. He called for 20,000 more troops. I think he's one of the very few people in public life who want more troops. Mr. McCain believes we need a larger army. He believes we need a larger Marines. And I also want to ask you, in that same vain of American toughness in winning the war, this guy al Sadr is still out there. There's been a warrant for his arrest for three years. His death squads, his militias, they're killing rival Shias, they're killing Sunnis. They tried to plot to take over the interior department in Baghdad. Why is he still on the loose? A lot of people say, why don't we rub out al Sadr? Why don't we take him into custody? That would be a sign of winning.

VICE PRESIDENT CHENEY: Well, we've moved -- obviously, we took the chief bad guy in Saddam Hussein, and he's on trial now. With respect to what happens in that kind of situation, though, again the Iraqis are now the sovereign authority inside Iraq. That's their government. It's their responsibility. They'll have to make those judgments and decisions about how they prosecute individuals that they believe are responsible for violating the law, whatever else they might have done. And that's an important part of their responsibility.

Q But al Sadr stays out there --

THE VICE PRESIDENT: Well --

Q -- capture.

VICE PRESIDENT CHENEY: He is -- obviously speaks for a significant number of Iraqis, has a strong following. But if anything were to be addressed in that area, it's got to be addressed by the Iraqis themselves.

Q You've been through a few midterm elections in your career.

VICE PRESIDENT CHENEY: I have.

Q Care to give us a forecast for this one?

VICE PRESIDENT CHENEY: I'm optimistic, Larry. I think we've been picking up speed here in the last couple of weeks. We did very well, I think, back in September, then we slowed down, obviously, and ran into some issues that were a distraction. But I sense we're back on track now. I've done 115, 116 campaigns so far this year. And I'm going back out on the road again this week. I think we will hold the House and hold the Senate. We may lose a few seats along the way, but I think that it's going to be a surprisingly strong year for Republicans.

Q Mr. Vice President, thanks for coming back on "Kudlow & Company."

VICE PRESIDENT CHENEY: Thank you, Larry. It's a great show.

END 10:04 A.M. EST