GEORGE STEPHANOPOULOS: Mr. President, thank you for doing this.

PRESIDENT BARACK OBAMA: It's great to be here.

GEORGE STEPHANOPOULOS: So, you've done all meetings on Capitol Hill, but I'm trying to figure out where this all goes. Because the- the Republican leader is still saying no revenues in any kind of a deal. I assume your bottom line is that any deal has to include revenues.

PRESIDENT BARACK OBAMA: Right.

GEORGE STEPHANOPOULOS: So, is your strategy to break them or to go around them? What is it?

PRESIDENT BARACK OBAMA: I don't think it's to break or go around them. I think it is to identify- members, particularly in the Senate, but I think also in the House, who are just tired of havin' the same argument over and over again. And- what I call the common-sense caucus, which says- we can do sensible deficit reduction with a combination of entitlement reform, some judicious spending cuts, closing some tax loopholes that nobody really defends on their own.

I mean, you don't hear people say, "Man, that's a great tax loophole- that we should keep." And if we do all those things, then instead of arbitrary cuts that hurt our economy, we can actually put in place- a growth strategy that creates jobs and protects the middle class and helps them thrive and grow. And- and that's what I've been talking about-

GEORGE STEPHANOPOULOS: But that-

PRESIDENT BARACK OBAMA: -for the last two years.

GEORGE STEPHANOPOULOS: -that common-sense caucus on the Republican side, Lindsey Graham, Kelly Ayotte, other Senate Republicans-

PRESIDENT BARACK OBAMA: Right. Yeah. Yeah.

GEORGE STEPHANOPOULOS: -say they're gonna need to see a lot more entitlement reform from you before they can sign onto any new revenues, like putting- raising the Medicare eligibility age back on the table. Is that back on the table?

PRESIDENT BARACK OBAMA: Well, one of things that- you know, I've discovered in some of these dinners, which has been- useful, is that people don't always know what I've actually proposed. And- it's a lot easier to have a conversation when there's something specific. So- I've said, "Here- this may not have gotten reported on. Maybe you guys didn't see it in your office. But here are the things we're looking to do."

And, you know, there's a finite number of changes that could be made to deal with our deficit. And I say, you know, "Do you guys like this? Do you not like that? What is it that you wanna do? Why don't you guys specifically tell me?" And through that process, potentially- you may see emerging- some consensus. Now-

GEORGE STEPHANOPOULOS: But even the ones who've seen your plans say they need to see more.

PRESIDENT BARACK OBAMA: Well- I understand. Which is why, at some point, I think I take myself out of this. Right now, what I'm trying to do is create an atmosphere where Democrats and Republicans can go ahead, get together, and try to get something done. And, y- you know- I think what's important to recognize is that- we've already cut- $2.5- $2.7 trillion out of the deficit. If the sequester stays in, you've got over $3.5 trillion of deficit reduction already.

And, so, we don't have an immediate crisis in terms of debt. In fact, for the next ten years, it's gonna be in a sustainable place. The question is, can we do it smarter, can we do it better? And- you know, what I'm saying to them is I am prepared to do some tough stuff. Neither side's gonna get 100%. That's what the American people are lookin' for. That's what's gonna be good for jobs. That's what's gonna be good for growth.

But ultimately, it may be that- the differences are just- too wide. It may be that ideologically, if their position is, "We can't do any revenue," or, "We can only do revenue if we gut Medicare or gut Social Security or gut Medicaid," if that's the position, then we're probably not gonna be able to get a deal.

GEORGE STEPHANOPOULOS: Where-

PRESIDENT BARACK OBAMA: That won't- that won't create a crisis. It just means that we will have missed an opportunity. I think that opportunity is there and I'm gonna- make sure that they know that I'm prepared to- work with them. But ultimately, it may be better if some Democratic and Republican Senators work together. We can-

GEORGE STEPHANOPOULOS: So, you might poison the well if you put forward these ideas

(OVERTALK)

PRESIDENT BARACK OBAMA: You know -I think whatever I'm for, it's very hard for a Republican to also be for. I think they always have to be a little bit- you know, maintain some distance-

(OVERTALK)

GEORGE STEPHANOPOULOS: Some of them are trying to call you out right now. Paul Ryan today put forward his budget. PRESIDENT BARACK OBAMA: Right. Right.

GEORGE STEPHANOPOULOS: And he said he's challenging you to come forward with a budget that also reaches balance. Are you gonna do that?

PRESIDENT BARACK OBAMA: No. We're not gonna balance the budget in ten years because if you look at what Paul Ryan does to balance the budget, it means that you have to voucherize Medicare; you have to slash deeply- into programs like Medicaid; you've essentially got to- either tax- middle-class families a lot higher than you currently are; or you can't lower rates the way he's promised. So, it's really- you know, it- it's a reprise of the same- legislation-

GEORGE STEPHANOPOULOS: Balanced by any point?

PRESIDENT BARACK OBAMA: -that he's put before. No. I think that there is a possibility. Look, balancing the budget in part depends on how fast you grow. You remember- you were in the Clinton administration. The reason that you guys balanced it was a combination of some tax hikes, some spending cuts, and the economy grew.

And, so- you know, my goal is not to chase- a balanced budget just for the sake of balance. My goal is how do we grow the economy, put people back to work, and if we do that we're gonna be bringin' in more revenue. If we've controlled spending and we've got a smart entitlement package, then potentially what you have is balance. But it's not balance on the backs of, you know, the poor, the elderly, students who need student loans, families who've got disabled kids. That's not the right way to balance-

GEORGE STEPHANOPOULOS: Let me ask you-

PRESIDENT BARACK OBAMA: -our budget.

GEORGE STEPHANOPOULOS: -one more question about the spending cuts. You've been takin' a lotta heat for this cancellation of the White House tours. They get- the Secret Service says it's costs about $74,000 a week. Was canceling them really necessary?

PRESIDENT BARACK OBAMA: You know, I have to say this was not- a decision that went up to the White House. But th- what the Secret Service explained to us was that they're gonna have to furlough some folks. What furloughs mean is- is that people lose a day of work and a day of pay.

And, you know, the question for them is, you know, how deeply do they have to furlough their staff and is it worth it to make sure that we've got White House tours that means that you got a whole bunch of families who are depending on a paycheck who suddenly are seein'-

GEORGE STEPHANOPOULOS: So no reconsideration?

PRESIDENT BARACK OBAMA: -a 5% or 10%- reduction in their pay. Well, what I'm asking them is are there ways, for example, for us to accommodate school groups- you know, who may have traveled here with some bake sales. Can we make sure that- kids, potentially, can- can still come to tour?

But- but- I'm always amused when people on the one hand say- the sequester doesn't mean anything and the administration's exaggerating its effects; and then whatever the specific effects are, they yell and scream and say, "Why are you doin' that?" Well, there are consequences to Congress not having come up with a more sensible way to reduce the deficit. And what I'm proposing is if we do it smart, if we do it sensibly, if we do it in a balanced way that the American support, including, by the way, a majority of Republicans, then we don't have to- do arbitrary stuff. We can do it in an intelligent way that's gonna improve our economy.

GEORGE STEPHANOPOULOS: Let me ask you about North Korea. Seen a lotta belligerent behavior from the-

PRESIDENT BARACK OBAMA: Yeah. Yeah. -regime in recent days. Canceled the 1953 armistice. And your director of national intelligence James Clapper told Capitol Hill today for the first time did North Korea and nuclear weapons and missiles pose a serious threat to the United States. So, can North Korea now make good on its threat to hit the United States?

PRESIDENT BARACK OBAMA: They- they probably can't, but we don't like margin of error, right, when it comes to-

GEORGE STEPHANOPOULOS: It's that close?

PRESIDENT BARACK OBAMA: Well, and I don't th- it's not that close. But what is true is, is they've had nuclear weapons since well before I came into office. What's also true is missile technology improves and their missile technology has improved. Now, what we've done is we've made sure that we've got defensive measures to prevent- any attacks on the homeland. And we're not anticipating any of that. But we've seen outta the North Koreans is they go through these periodic spasms of- of provocative behavior.

GEORGE STEPHANOPOULOS: Is this one more serious?

PRESIDENT BARACK OBAMA: Well- I don't necessarily think it's different in kind. They've all been serious. Because when you're talking about a regime that- is oppressive towards its people, is belligerent- has shown itself to sometimes miscalculate and do things that are very dangerous- that's always a problem. And, so, we've s- what we've done is organized the world community to strengthen sanctions, to sink- strengthen unilateral sanctions on- North Korea.

I think what's most promising is we're startin' to see the Chinese, who historically have- tolerated misbehavior on the part of the North Koreans because they're worried about- regime collapse and how that could spill over to them. You're startin' to see them recalculate and say, "You know what? This is startin' to get outta hand." And, so, we may slowly be in a position where we're able to force- a recalculation on the part of North Koreans about what's gonna be-

GEORGE STEPHANOPOULOS: Is there anything more you-

PRESIDENT BARACK OBAMA: -good for them and not -

GEORGE STEPHANOPOULOS: -can be doing directly? The last American to see Kim Jong Un, Dennis Rodman. I had (LAUGH) the pleasure of talking to him a couple weeks ago-

PRESIDENT BARACK OBAMA: Yeah, I noticed that

GEORGE STEPHANOPOULOS: -a little crazy. But he did say that Kim Jong Un said, "Boy, I want the president to call me." Back in 2007, you were for a direct-

PRESIDENT BARACK OBAMA: Right.

GEORGE STEPHANOPOULOS: -talk, you said you were for with the North Koreans. Would it make any sense now, one? If not, why not?

PRESIDENT BARACK OBAMA: You- you- you know, I think that- you always wanna create the conditions where if you have a conversation, it's actually useful. And, you know, we're not the only players in this. Obviously, the South Koreans- the Chinese- all the six-party talk players- need to be involved in how you resolve this.

And, you know, we communicate with the North Koreans. They know- what our bottom lines are. What we've said is we want a denuclearized peninsula. You know, we've gotta stop with these kinds of provocative threats. And we're prepared to work with them where they could break their isolation and- rejoin the-

GEORGE STEPHANOPOULOS: What do you need to see first?

PRESIDENT BARACK OBAMA: -international community. Well- I mean, I think there are a lot of things. But they could start by- ending nuclear testing. They could start by ending some of this missile testing. There are- a whole s- battery of- of confidence-building measures that they could engage in. And I think all the countries involved have said, "We would reciprocate if we saw- the- any kind of responsible behavior from the North Koreans. We have not seen it yet." That doesn't mean that- they may not- change their calculations.

One thing we've tried to do is to make sure that we're not gonna reward bad behavior. There previously have been patterns where, you know, they bang the spoon on the table and then suddenly they get food aid. Or- they get other concessions. And then they come back to the table and negotiate a little bit, and then if they get bored they start- provocative actions again. We've broken that pattern. Now, what we need to see is- is whether they're willin' to come- in a serious way to negotiate these issues.

GEORGE STEPHANOPOULOS: Let me stay in the region. Because James Clapper also today talked about cyber attacks. Put-

PRESIDENT BARACK OBAMA: Yeah. Right.

GEORGE STEPHANOPOULOS: -that at the top of his list of threats to the United States. A couple weeks ago- the chairman of the House Intelligence Committee- Mike Rogers, said that we are at war with China. Because of their cyber espionage, they're winning that war. And their government and military is behind it. Do you believe that?

PRESIDENT BARACK OBAMA: Well, I think- you al- always have to be careful war analogies. Because, you know, there's a big difference between- them engaging in cyber espionage or cyber attacks and- obviously- a hot war. What- is absolutely true- is that we have seen- a steady ramping up of cyber security threats. Some are state sponsored. Some are just sponsored by criminals. The-

GEORGE STEPHANOPOULOS: But some are state sponsored?

PRESIDENT BARACK OBAMA: Absolutely. And- and billions of dollars are lost to the consequences. You know, industrial secrets are stolen. Our companies are put into competitive disadvantage. You know, there are disruptions to our systems- that, you know, involve everything from our financial systems to some of our infrastructure.

And this is why I've taken some very aggressive executive actions. But we need Congress to act. We've put before Congress what exactly we need that will protect people's privacy and civil liberties, but will also make sure that our overall system, both public and private, are protected from these kinds of attacks.

GEORGE STEPHANOPOULOS: But it sounds like-

PRESIDENT BARACK OBAMA: So far, Con-

GEORGE STEPHANOPOULOS: -China to back down.

PRESIDENT BARACK OBAMA: -so far, Congress hasn't acted yet. Well, we've made it very clear to China and some other state actors that, you know, we expect them to follow international norms and abide by international rules. And we'll have a s- some pretty tough talk with them. We already have.

But there are also things that we can do that are completely in our control right now that we're not doing. And I'm urging Congress, get this done. What we don't want is a situation analogous to 9/11- not where we have, you know, obviously the same k- level of- of- of destruction and- and- and loss of life. But you could see situations where we are surprised by major system disruptions. You know, our air traffic control system affected. Our financial system-

GEORGE STEPHANOPOULOS: State sponsored?

PRESIDENT BARACK OBAMA: -affected. Well, not necessarily state sponsored. But here's the point, George. What you don't wanna do, you don't wanna have a situation in which- you have vulnerabilities and you don't know who might be carrying 'em out. You can't always trace them back- to- they- they don't always send- a return address when a hacker gets into a system. And there are ways that we can harden our critical infrastructure, our financial sector. And- the only thing that's holding us back from doing that right now is we haven't gotten the- legislative authority outta Congress. They need to get this done and I'm hopeful that- this is an example, by the way, of the kind of- bipartisan discussions that I'm having. When- when- when I'm having-

(OVERTALK)

GEORGE STEPHANOPOULOS: Michael Rogers is for this too

PRESIDENT BARACK OBAMA: Yeah. When I'm having discussions with Republicans, it's not just around the budget. There are areas where I think- you- you already see the parties a little bit closer. Cyber security, on immigration reform- certain aspects of government legislation where I think we can see progress. And, so- you know, part of what I'm-

GEORGE STEPHANOPOULOS: But on the background checks for the assault weapons ban.

PRESIDENT BARACK OBAMA: Well, the- you know, those are still tough. But the conversations are still takin' place. And- and part of what- I'm- I'm tryin' to encourage Congress to think about is yes, we've got some big disagreements on the budget. But we've made some big cuts. There's not- in any way- an immediate crisis with respect to- our finances.

The economy is growing. And, you know, there may be disagreements that we can't bridge right now- when it comes to financial situation. I'm hopeful that we can. But let's not have this crisis mentality stall all the other progress that needs to be made to help- Americans find jobs, help Americans grow the economy.

I'll- I'll give you an example. We should be helping Americans refinance their homes right now. The housing market's finally recovering. We've got an opportunity where ev- every American out there could get up to $3,000 in, basically, found money just by refinancing from high rates to low rates. That's like a massive tax cut for millions of Americans that would go to businesses, help create the- the climate where pe- employers wanna hire more. The only thing that's holding us back is Congress hasn't authorized it yet. Those are the kind of things that we should be able to do and do right away, even if we don't solve every other- disagreement that we've got on-

GEORGE STEPHANOPOULOS: Let me ask you-

PRESIDENT BARACK OBAMA: -on other issues.

GEORGE STEPHANOPOULOS: -about another computer security information-

PRESIDENT BARACK OBAMA: Yeah.

GEORGE STEPHANOPOULOS: -issue coming up. It turns out, today w- this report that the first lady's financial information, some personal information, Secretary of State Hillary Clinton's, former secretary of state, Vice President Joe Biden all posted on the internet. I know the Secret Service is investigating this. But it was pretty chilling, I think, to a lot of us that this kind of information for those people could get out.

PRESIDENT BARACK OBAMA: We don't know how accurate some of these reports are, so I- I- I can't vouch and verify that, in fact- you know, the first lady's information or any of the other figures- was, in fact, posted. But we should not be surprised that if you've got hackers who wanna- dig in and devote a lotta resources- that they can access people's private information. It- it is a big problem.

GEORGE STEPHANOPOULOS: Right into the White House.

PRESIDENT BARACK OBAMA: And- again, I c- I'm not confirming that that's what happened. But it would not shock me if some information in- among people who presumably have pretty good safeguards against it, still gets out. That's part of the reason why we've gotta continually improve what we do and coordinate between public and private sectors to make sure that people's information is safe.

Look- you- you've got- y- you've got websites out there right now that sell people's credit cards that have been stolen, identity theft. And you can go to the website and- you- you can basically buy somebody else's- identity and their credit cards and- and be- that's how sophisticated some of these operations are. That's part of what we have to start shutting down. And we've gotta do that on a coordinated basis internationally because not every- one of these folks are actually located domestically. A lot of 'em are- are foreign and- and we've gotta make sure that we're on top of it.

GEORGE STEPHANOPOULOS: Let me ask you a question about gay marriage. When Robin was here last spring, you came out in favor of gay marriage. But you also said at the time that you wanted it to be a state-by-state-

PRESIDENT BARACK OBAMA: Yeah. Yeah.

GEORGE STEPHANOPOULOS: -issue, it would be a mistake to nationalize it. Do you still believe that, or do you now believe that gay marriage is a right guaranteed to all Americans by the Constitution?

PRESIDENT BARACK OBAMA: Well, I've gotta tell you that- in terms of practical politics, what I've seen is a healthy debate taking place state by state, and not every state has the exact same attitudes and cultural mores. And I- you know, my thinking was that this is traditionally a state issue and- that it will work itself out.

On the other hand- what I also believe is that the core principle that people don't get discriminated against- that's one of our core values. And it's in our constitution. It's in- the- you know, 14th Amendment and the Equal Protection Clause. And- from a legal perspective, the- the- the bottom line is, is that gays have historically been discriminated against and I do think that courts have to apply what's called heightened scrutiny, where they take a careful look. If there's any reason for- gays and lesbians to be treated differently, boy, the government better-

GEORGE STEPHANOPOULOS: So banning gay marriage-

PRESIDENT BARACK OBAMA: -have a really good-

GEORGE STEPHANOPOULOS: -is discrimination? PRESIDENT BARACK OBAMA: Well, what I- what I believe is that- if- if the states don't have a good justification for it, then it probably doesn't stand up to constitutional muster

GEORGE STEPHANOPOULOS: Can you imagine one?

PRESIDENT BARACK OBAMA: So- well, I can't, personally. I cannot. That's part of the conc- reason I said, ultimately, I think that- you know, same-sex couples should be able to marry. That's my personal position. And, frankly, that's the position that's reflected- in the briefs that we filed- in the Supreme Court. My hope is that- the Court looks at the evidence and- and in the California case, for example, the only reason presented for treating gays and lesbians differently was, "Well, they're gay and lesbian." There wasn't- a real rationale beyond that. In fact- you know, all the other- rights and- and- responsibilities of- a civil union were identical to marriage.

It's just you couldn't call it marriage. Well, at that point, what you're really sayin' is- "We're just gonna treat these folks differently because of who they are." And- and I do not think- that's- that's who are as Americans. And- and frankly, I think- American attitudes have evolved, just like mine have- pretty substantially and fairly quickly, and I think that's a good thing.

GEORGE STEPHANOPOULOS: We're just about outta time. One more question. While we're here-

PRESIDENT BARACK OBAMA: Yeah. Yeah. Right.

GEORGE STEPHANOPOULOS: -a lot of eyes on Rome as the cardinals prepare to pick a new pope. And for the first time, some American cardinals on the list. Well, what I wanted to ask you about, there seems to be some concern, and you hear this a lot, that- among Catholics, there shouldn't be an American pope because that pope would be too tied to the U.S. government. Kinda the mirror image of-

PRESIDENT BARACK OBAMA: That's interesting. Yeah. Yeah.

GEORGE STEPHANOPOULOS: -John F. Kennedy's problem back in 1960. What do you think of that?

PRESIDENT BARACK OBAMA: You know- I- I don't know enough about the internal workings of the Catholic Church to know how seriously those- issues are being discussed. It seems to me that- an American- pope would- preside just as effectively as a Polish pope or an Italian pope or- a Guatemalan pope.

GEORGE STEPHANOPOULOS: And not take orders from you?

PRESIDENT BARACK OBAMA: Well, I guarantee you I- I- look- you know, I- I don't know if you've checked lately, but- the conference of Catholic bishops here in the United States don't seem to be takin' orders from me. I- my hope is- based on what I know about the Catholic Church and- the terrific work that they've done around the world.

And certainly in this country, and, you know- helping those who are less fortunate- is that- you have- a pope who sustains and maintains- what I consider the central message of the gospel. And that is- that we- we treat everybody- as children of God and that- we love them- the way Jesus Christ taught us to love 'em.

And- and that means- you know, a devotion- to God, but it also means- a devotion to service and- and- you know, p- that- that's- you know, a deep part of the Catholic tradition. I think that- a pope that- you know, is that clarion voice on behalf of those issues- will- you know, w- will- will have a tremendous and positive impact on the world.

GEORGE STEPHANOPOULOS: We'll all be watching for the white smoke. Mr.-

PRESIDENT BARACK OBAMA: Absolutely.

GEORGE STEPHANOPOULOS: -President, thank you.

PRESIDENT BARACK OBAMA: Good. Thank you.

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