Transcript: Senator George W. joseph robinette and Governor sarah palin held a vice presidential debate in St. Louis.

Good evening, this is Washington University in St. Louis, Missouri. I'm Gwen Eiffel from PBS News Hour and Washington Week. Welcome to the first and only debate in 2008 between Alaska Governor sarah palin and Democratic candidate Joe Biden of Delaware.

Commission on Presidential Debates is the organizer of this event and the other two presidential debates. Tonight's discussion will cover a wide range of topics, including domestic and foreign policies.

It will be roughly divided into five-minute intervals. Each candidate will have 90 seconds to answer a direct question, and then two minutes to refute and follow up. The order is determined by flipping a coin.

I chose the specific topics and questions, and I didn't share or clarify them with anyone in the campaign or the Committee. The audience in the hall has promised to be very polite, without cheers, applause and unpleasant outbursts, unless now, we welcome Governor Palin and Senator Biden.

(Applause)

Palin: Nice to meet you.

Biden: It's a pleasure.

Palin: Hey, can I call you Joe?

Biden: (not in front of the microphone)

Palin: Thank you.

Thank you Gwen. Thank you. Thank you.

Welcome both of you.

As we decided by flipping a coin, the first question will be asked by Senator Biden, followed by Governor Palin's 90-second question.

The House of Representatives passed a bill this week, a big bailout bill, or failed to pass it. The Senate decided to pass the bill, and the House of Representatives is still debating it tonight.

Senator Biden, when the United States watched these things happen on Capitol Hill, was it the worst side or the best side of Washington that we saw?

Biden: First of all, I want to thank you for hosting this meeting, Gwen.

Governor, nice to meet you and to be with you.

I think this is neither the best nor the worst in Washington, but it proves the fact that the economic policy of the past eight years is the worst in our history. So, you have seen what happened on Wall Street.

If you need more evidence to prove how bad economic theory is, this excessive deregulation, failure to monitor what is happening, and let Wall Street run amok, I don't think you need more evidence than what you see now.

Therefore, Congress-both Democrats and Republicans-are in a very difficult position. But barack obama listed four basic criteria for any kind of rescue plan.

He first said that there must be supervision. We won't write any checks to anyone unless we have supervision over the finance minister.

Secondly, he said that you must pay attention to the owner and the people on the main street.

Third, he said that in this case, you must treat taxpayers like investors.

Finally, what you need to do is to make sure that the CEOs will not benefit from it, because in the long run, it may make people benefit from this rescue plan.

So, as a result, this brings us back to the fundamental difference between Governor Palin and me, Senator McCain and barack obama, that is, we will fundamentally change the focus of economic policy.

We will pay attention to the middle class, because when the middle class grows, the economy grows and everyone lives well, not just the rich and American companies.

Thank you, senator.

Governor Palin?

Palin: Thank you, Gwen. I also thank the Committee. I am honored to be able to talk with Americans here.

You know, I think it's a good barometer here. When we try to figure out whether the American economy is good or bad now, we go to a children's football game on Saturday, and then turn to any parents on the sidelines and ask them, "How do you feel about the economy?"

I bet you will hear some fears in this parent's voice, worrying that some of us will make a few investments in the stock market. Have we just suffered a heavy blow on those investments?

Worried, how can we afford to send our children to college? As small business owners, we may worry about how to borrow money to increase inventory or hire more people.

I think the barometer there will be loud, our economy is being hurt, and the federal government has not provided the sound supervision we need and deserve, so we need to reform it.

Thankfully, John McCain is the representative of reform. Please remember that two years ago, it was John McCain who vigorously promoted the reform measures of Fannie Mae (new york Stock Exchange code: FNM) and Freddie Mac (new york Stock Exchange code: FRE). He sounded the alarm.

The people with him in the Senate, his colleagues, didn't want to listen to him and didn't want to carry out the reforms needed at that time. I think the alarm has sounded and there will be greater supervision. Thanks again to John McCain's bipartisan efforts, he brought people together in the past week and even suspended his campaign to ensure that he put too much politics aside and put the country first.

You both want to be vice presidents.

Senator Biden, as vice president, how will you try to narrow the polarization gap in Washington? You both talked about this tonight.

Biden: Well, that's what I've done all my career, Gwen, on very, very controversial issues, from dealing with violence against women to letting100,000 police officers take to the streets to trying to solve the genocide in Bosnia.

I have been able to cross the aisle. I think it's fair to say that I have almost as many friends in the Republican Party as I do in the Democratic Party.

But I can respond, can we continue this topic?

If you like, you can.

Biden: Yes, you know, until two weeks ago, that is, two weeks ago, John McCain said at 9 o'clock in the morning that the fundamentals of the economy were strong. Two weeks ago, he said that George-under the policy of George Bush, we have made great economic progress.

At nine o'clock, the economy is strong. On the same day 1 1 point two weeks ago, John McCain said that we were facing an economic crisis.

This does not mean that John McCain is a bad person, but it does point out that he is divorced from reality. Those who watched knew about it two months ago.

Governor Palin, you can answer.

Palin: When John McCain mentioned the strong foundation of our economy, he meant the American labor force. The American labor force is the strongest in the world, and their creativity and professional ethics have been deeply rooted in our labor force. This is positive. That's encouragement. That's what John McCain meant.

Now, what I do as governor and mayor is (inaudible) that I have a record of reform. I joined this team, which is a maverick team with John McCain, and because of his reform record, we are famous for putting aside party politics and doing our job well.

Now, barack obama, of course, votes almost exclusively along his party lines. In fact, 96% of his votes were cast along the party line, and there was no evidence for the American people to know. His promise was also, you know, to put aside party prejudice and special interests and do things for the American people seriously.

We are tired of the old politics as usual. That's why, with all due respect, I respect your years in the U.S. Senate, but I think Americans are eager for new and different things, new energy and new commitments brought by reform.

I think that's why we need to send this maverick from the Senate to the White House, where I am very happy to work with him.

Governor, senator, neither of you really answered the last question, which is what you will do as vice president. I'll come back to this topic. ...

(Laughter)

... try to see if we can move on, too

Now, let's talk. The next question is about the subprime mortgage crisis.

Whose fault do you think it is? I'll start with you, Governor Palin. Is it a greedy lender? Are those risky buyers not supposed to buy a house in the first place? What should you do?

Palin: Exactly. It's the looters' lenders. They try to convince Americans that if we can only afford a house of 100000, then it's wise to buy a house of $300000. There is cheating, greed and corruption on Wall Street. We need to stop this.

Again, John McCain and I, we have made a promise, and we will stick to it and eliminate corruption.

Palin: One of the things that Americans do at this time is to make a promise every day. The American people, the gang of six, and hockey moms all over the country, I think we need to unite and say that it will never happen again. We will never be exploited and used by those who manage our money and lend it to us again. We need to make sure that we require the federal government to strictly supervise the entities responsible for our investment and savings, and we also need to avoid getting ourselves into debt. Maybe we should do what our parents told us before we got the first credit card. Don't live within your means. We need to make sure that, as individuals, we take personal responsibility for all this. It is not the fault of the American people that the American economy is hurt now, but we have the opportunity to learn a lot of good lessons from this incident and say that we will never be used again.

Senator?

Biden: Gwen, barack obama warned about the subprime mortgage crisis two years ago. John McCain said in1February that he was surprised by the subprime mortgage problem. John McCain told The Wall Street Journal when barack obama warned us what we had to do, saying that I always supported reducing regulation. We let Wall Street run amok. John McCain, he is a good man, but John McCain thinks the answer is that the real reaction of Republicans is to deregulate, deregulate.

So what you have is overwhelming "deregulation". You actually believe that Wall Street can regulate itself. While barack obama was talking about restoring these regulations, John called for more deregulation on 20 different occasions in the past year and a half. In fact, John recently wrote an article in a major magazine saying that he wanted to deregulate the health care industry and let the free market operate as he did for the banking industry.

Therefore, deregulation is a commitment. Guess what? Those who say don't get into debt, they can hardly afford to fill the tank. Recently, I asked a man named Joey Danke at the local gas station. Joey, how much does it cost to fill up your gas tank? Do you know what his answer is? He said I don't know, Joe. I never have enough money to do it. The middle class needs relief and tax cuts. They need it now. They need help now. With barack obama in office, the focus will change.

IFILL: Governor, if you want to respond to what he said about Senator McCain's comments on health care, please answer?

Palin: I want to respond to the question of tax increase. We can agree here that we need to cut taxes for Americans in order to create jobs here. Now, barack obama and Senator Biden also voted for the largest tax increase in American history. Barack had 94 chances to stand by the people and cut taxes, 94 times voted for tax increase or not, and 94 times.

Now, this is not what we need to create jobs and really support and heat our economy. We really need the private sector to keep more of what we study and produce. If this is what the government growth we see today needs, the government will have to learn to be more efficient and spend less. But we really need to cut taxes. barack obama even supported tax increases for families with an annual income of only $42,000 last year. This is a tax increase for many middle-income American families. I think this is a way to stifle employment opportunities and continue to damage our economy.

Senator?

Biden: The accusation is absolutely not true. Barack obama didn't vote to raise taxes. The vote she was referring to, John McCain voted exactly the same. This is a procedural vote on the budget. John McCain also voted the same way. It didn't raise taxes. Second, according to the standards used by the governor, John McCain voted 477 times to increase taxes. This is a false standard, but if you notice, Gwen, the governor didn't answer the question about deregulation, didn't answer the question about defending John McCain, and didn't agree to deregulation and let Wall Street run wild. He did almost fully support deregulation. This is why we are in so much trouble.

Would you like to have a chance to answer this question before we continue?

Palin: I'm still talking about taxes because I want to correct you again. I want you to know what I have done as mayor and governor. I may not answer questions in the way that the host or you want to hear, but I will talk to the American people directly and let them know my record. As mayor, I cut taxes every year I was in office. I abolished personal property tax and small business inventory tax, and as governor, we suspended state fuel tax. We have done all these things, knowing that this will warm up our economy. Now, as for John McCain's insistence on rules and regulations and pushing for stricter rules and regulations, this is another thing he is known for. Look at the tobacco industry. Look at campaign finance reform.

All right, our time is up. We must move on to the next question. Senator Biden, we want to talk about taxes. Let's talk about taxes. You propose to raise taxes on people who earn more than $250 thousand a year. Your question is, why is this not a class struggle, Governor Palin? Your same question is that you have proposed an employer's health welfare tax. Some studies show that this will actually increase the number of uninsured people by 5 million. I want to know why not point the finger at the poor, starting with you, Senator Biden.

Biden: Well, Gwen, where I come from, it's called fairness, just simple fairness. The middle class is struggling. Under John McCain's tax proposal, the middle class,/kloc-0.0 million families, middle class families, to be exact, families, they have not been changed, and they have not received any tax relief. According to barack obama's plan, people earning less than $250,000 will not see their taxes increase by a dime, whether it is capital gains tax, income tax, investment tax or any tax. In the United States, 95% of people earning less than150,000 dollars will get tax cuts.

Now, in my opinion, this is simple fairness. America's economic engine is the middle class. It's the people who listen to this broadcast. When you do well, America does well. Even the rich do well. This is not punitive. John wants to add $300 million a year in new tax cuts for American companies and the very rich, and give almost nothing to the middle class. We have different values. The middle class is the engine of the economy. Fair enough. They should enjoy tax breaks, not the super-rich who live well. They don't need more tax breaks. By the way, they won't pay more than when Ronald Reagan was in power.