John Harwood Interviews Speaker of the House Representative, Nancy Pelosi Today Live at the Four Seasons Hotel in New York City on "Power Lunch" (Transcript Included)

WHEN: Monday, October 15 at 12:30PM
WHERE: "Power Lunch"

The following is the unofficial transcript of a CNBC interview with Speaker of the House, Representative Nancy Pelosi on CNBC's "Power Lunch" today. All references must be sourced to CNBC.

Live from The Four Seasons Restaurant in New York City, CNBC's John Harwood interviews Speaker of the House, Representative Nancy Pelosi, on CNBC's "Power Lunch." During the interview, Pelosi discusses the economy, the spending war with President Bush, Bush's SCHIP veto and taxing private equity, among other topics.

JOHN HARWOOD: THANKS, SUE AND BILL, I'M JOINED BY NANCY PELOSI, THE SPEAKER OF THE HOUSE. WELCOME.

NANCY PELOSI: MY PLEASURE TO BE HERE, JOHN.

JOHN HARWOOD: LET ME START BY ASKING YOU ABOUT THE ISSUE OF TAXES, WHERE YOU STAND IN POLITICS DEPENDS ON WHERE YOU SIT, AND A LOT OF PEOPLE SITTING WHERE WE'RE SITTING RIGHT NOW IN NEW YORK LOOK AT THE DEMOCRATIC AGENDA, THERE'S CONSENSUS THAT UPPER INCOME TAX RATES ARE GOING TO GO UP THE BUSH TAX CUTS ARE GOING TO GO UP WHEN THEY EXPIRE. STEP BACK AND THINK, THAT'S CRAZY. WHY WOULD YOU MESS WITH AN ECONOMY THAT THE STOCK MARKET'S DOING WELL, WE'VE BEEN GROWING FOR 49 MONTHS IN A ROW, WHAT'S YOUR ANSWER?

NANCY PELOSI: WELL, FIRST OF ALL, THERE'S BEEN NO DECISION IN THAT REGARD IT HAS BEEN A POSITION THAT DEMOCRATS HAVE TAKEN. WE WANT TO HAVE MORE FAIRNESS AND MORE SIMPLIFICATION OF OUR TAX CODE, BUT WE HAVE SOUGHT FIRST TO LOOK AT WHERE WE COULD MAKE CUTS IN SPENDING AND ELIMINATING WASTE, FRAUD, AND ABUSE BEFORE WE GO TO THE ISSUE OF TAXES. THE PRINCIPLE THAT WE'VE OPERATED UNDER TIGHT FISCAL DISCIPLINE, NO NEW DEFICIT SPENDING, PAY AS YOU GO. WE THINK THAT'S GOOD FOR THE ECONOMY. IF AT SOME TIME WE HAVE A PRIORITY THAT NEEDS TO BE FUNDED THAT IS A PRIORITY FOR THE AMERICAN PEOPLE, WE MAY LOOK TO WHERE THAT MAY BE FUNDED, BUT SO FAR 80% OF OUR INITIATIVES WHETHER IT WAS 9/11 COMMISSION RECOMMENDATIONS, PACKAGES FOR STUDENT LOANS, THE BIGGEST PACKAGE SINCE 1944, WHATEVER THE ISSUE HAS BEEN THAT WE HAVE PASSED LEGISLATION, 80% OF THAT HAS BEEN PAID FOR BY SHIFTING PRIORITIES AND NO NEW TAXES. THE LARGEST TAX THAT WE HAVE IS THE CIGARETTE TAX ON THE S-CHIP, THE STATE CHILDREN'S HEALTH INSURANCE PROGRAM, BUT BY AND LARGE IT'S ALL BY SHIFTING PRIORITIES.

JOHN HARWOOD: GIVEN THE VETO THREAT THAT THE PRESIDENT'S PUT OUT ON ANY TAX INCREASE IN THIS CONGRESS, ARE WE LIKELY TO SEE BEFORE THIS CONGRESS IS DONE ANY INCREASE EITHER THOSE OVER 200,000, THOSE OVER 500,000? PEOPLE HAVE TALKED ABOUT A SURTAX PROTECTING MIDDLE CLASS TAXPAYERS S THAT GOING TO HAPPEN OR ARE WE JUST GOING TO TALK AND FIGHT AND VETO?

NANCY PELOSI: ARE YOU TALKING ABOUT THIS SESSION?

JOHN HARWOOD: IN THIS ENTIRE CONGRESS.

NANCY PELOSI: WE ARE GOING TO TAKE A LOOK AND SEE WHAT WE NEED TO DO, BUT AGAIN, TIGHT FISCAL DISCIPLINE, REALIGNMENT OF PRIORITIES, AND WE WOULD HOPE TOP WORK WITH THE PRESIDENT ON THAT BECAUSE IF HE WOULD ABANDON SOME OF HIS SPENDING PRIORITIES WHICH ARE NOT GOOD INVESTMENTS FOR THE FUTURE, WE COULD FUND OUR INNOVATION AGENDA WHICH IS OUR COMMITMENT TO COMPETITIVENESS TO KEEP AMERICA NUMBER ONE, PAID FOR UNDER THE LEGISLATION WHICH HE SIGNED IN JULY. WE COULD PAY FOR OUR INVESTMENTS IN INNOVATION THAT RECOGNIZE INNOVATION BEGINS IN THE CLASSROOM AND NOTHING BRINGS MORE TO THE TREASURY MORE THAN EDUCATING THE AMERICAN PEOPLE. SO LET'S START WITH WHAT OUR AGENDA IS, HOW IT GROWS THE ECONOMY, HOW IT, AGAIN WITH THE FISCAL DISCIPLINE S GOOD FOR THE ECONOMY, AND THEN LOOK AT THESE. NOW, ON THE ALTERNATIVE MINIMUM TAX THERE WILL BE A FIX ON THAT, AT LEAST A PATCH IN THE SHORT TERM. THAT, AGAIN, WILL HAVE TO BE SUBJECTED TO FISCAL DISCIPLINE.

HARWOOD: PAID FOR BY THOSE OVER 500,000?

PELOSI: WELL, WE'LL SEE WHERE IT HAS TO BE, BUT WE'LL LOOK AT A NUMBER OF DIFFERENT PLACES TO DO IT. BUT IT IS A TAX BREAK FOR THE MIDDLE CLASS, AND THAT IS WHAT WE ARE ABOUT.

HARWOOD: LET ME ASK YOU ABOUT THE ISSUE OF PRIVATE EQUITY TAXATION. YOUR COUNTERPART IN THE SENATE, HARRY REID, HAS INDICATED HE'S NOT GOING TO HAVE ENOUGH TIME TO PASS LEGISLATION THAT WOULD TAX CARRIED INTEREST, WHAT IS CALLED INTEREST ON HEDGE FUND MANAGERS AT ORDINARY INCOME RATES. ARE YOU AND THE HOUSE GOING TO MOVE FORWARD WITH THAT LEGISLATION EVEN THOUGH THE SENATE'S NOT LIKELY TO ACT ON IT? OR ARE YOU GOING TO DROP IT AS WELL?

PELOSI: I HAD A DIFFERENT VIEW OF WHAT HE SAID, I KNOW HE SAID WHAT YOU DESCRIBED, BUT IF IT BECOMES AN ISSUE THAT IS PART OF FISCAL DISCIPLINE WE MAY HAVE TO REVISIT HOW SOME OF THE ALTERNATIVE MINIMUM TAX BREAK FOR THE MIDDLE CLASS ARE PAID FOR, SO IF THERE IS A REASON TO REVISIT --IT WILL BE

HARWOOD: SO IT'S NOT DEAD YET?

PELOSI: LET ME JUST SAY THIS, I THINK I UNDERSTAND THE SOPHISTICATION OF THE ISSUE, BUT I ALSO KNOW THAT IF IT IS ORDINARY INCOME, IT SHOULD BE TAXED AS ORDINARY INCOME. IF IT IS CAPITAL GAINS, IT SHOULD BE TREATED AS CAPITAL GAINS AND NOT ALL CARRIED INTEREST FALLS INTO THE CATEGORY OF CAPITAL GAINS.

HARWOOD: LET ME ASK YOU ABOUT A HOT ISSUE, THE S-CHIP HEALTH CARE DEBATE. YOU HAVE YOUR OVERRIDE VOTE ON THURSDAY. REPUBLICANS TELL ME AND SOME DEMOCRATS AS WELL YOU'RE FAR FROM HAVING ENOUGH VOTES TO OVERRIDE THE PRESIDENT. IS THIS JUST POLITICAL THEATER WE'RE GOING THROUGH AND THEN YOU'LL HAVE A NEGOTIATION AFTERWARDS, OR IS THERE ANY REASON TO THINK YOU COULD ACTUALLY FLIP THE 14 OR 15 MEMBERS YOU WOULD NEED TO GET TO 290?

PELOSI: WE HAVE AN INIATIVE THROUGHOUT THE COUNTRY OF GOVERNORS REPUBLICANS AND DEMOCRATS ALIKE APPEALING TO THEIR MEMBERS IN CONGRESS TO OVERRIDE THE PRESIDENT'S VETO. EVERY ORGANIZATION YOU CAN NAME, AARP, AMA, THE CATHOLIC HOSPITAL ASSOCIATION, ANYBODY WHO CARES OR HAS ANYTHING TO DO WITH CHILDREN'S HEALTH IS APPEALING TO MEMBERS OF CONGRESS TO MAKE THIS CHANGE. -- TO OVERRIDE THE PRESIDENT'S VETO. I WOULD HOPE THAT WE COULD DO THAT, BUT WE WILL NOT REST UNTIL THOSE TEN MILLION CHILDREN ARE COVERED. THINK OF IT THIS WAY. FOR 40 DAYS IN IRAQ WE COULD COVER TEN MILLION CHILDREN IN AMERICA FOR ONE YEAR. FORTY DAYS, TEN MILLION CHILDREN AMERICA FOR ONE YEAR. THAT'S WHEN WE TALK ABOUT REALIGNING THE PRIORITIES.

HARWOOD: YOU MENTION IRAQ. LET ME ASK YOU TO STEP BACK AND REFLECT ON THIS YEAR SO FAR. TREMENDOUS AMOUNT OF HOPE ACCOMPANIED YOUR ASCENSION TO THE SPEAKERSHIP. A LOT OF PEOPLE THOUGHT THERE WAS GOING TO BE CHANGE ON IRAQ AND MAYBE A CHANGE IN THE TONE IN WASHINGTON. AND WE REALLY HAVEN'T SEEN IT. THE WAR'S GONE ON, AND THE TWO PARTIES ARE REALLY AT KNIFE'S EDGE, AS THEY HAVE BEEN FOR THE LAST SEVERAL YEARS. HOW WOULD YOU GRADE THE AMOUNT OF CHANGE YOU'VE BEEN ABLE TO BRING?

PELOSI: I THINK WE'VE BROUGHT A GREAT DEAL OF CHANGE IN OUR DIRECTION FOR CONGRESS, AND MAY I SAY STARTING WITH OUR FIRST BILL, 9/11 COMMISSION RECOMMENDATIONS HR1 WAS VOTING, ALSO, TO GIVE THE BIGGEST INCREASE IN BENEFITS TO OUR VETERANS IN A 77-YEAR HISTORY OF THE VETERANS ADMINISTRATION WHETHER IT WAS RAISING THE MINIMUM WAGE, PASSING OUR INNOVATION AGENDA, PASSING OUR INCREASE IN THE PACKAGE FOR STUDENT LOANS, ASSISTANCE IN STUDENT LOANS FOR COLLEGE EDUCATION, THE BIGGEST PACKAGE SINCE GI BILL IN 1944, WHETHER IT WAS OUR ENERGY BILL WHICH IS NOT YET SIGNED INTO LAW. MOST OF THE REST IS. ALL PAID FOR AND ALL WITH OVERWHELMING BIPARTISAN MAJORITIES IN THE CONGRESS. SO WHILE THERE'S SOME DISAGREEMENT, WE DIDN'T GO THERE TO SAY WE'RE NOT EVER GOING TO DISAGREE, WE HAVE COME TOGETHER TO MEET THE NEEDS OF THE AMERICAN PEOPLE IN A FISCALLY-SOUND, HIGHLY-ETHICAL WAY, MOST OF IT SIGNED BY THE PRESIDENT OF THE UNITED STATES. IN TERMS OF THE WAR --

HARWOOD: I AM TOLD THAT WE HAVE GOT TO LEAVE IT THERE, WE'RE OUT OF TIME. THANK YOU SO MUCH FOR JOINING US.

PELOSI: MY PLEASURE.

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