TRANSCRIPT: 'On the Trail' with Sen. John McCain

STEPHANOPOULOS: How about Iran? You said many, many times the only thing worse than war with Iran is a nuclear Iran. Would President McCain come to Congress before taking military action against Iran?

MCCAIN: Unless it was some dire emergency that required -- you know, I mean, they were about to launch or something like that. But under most -- almost all reasonable scenarios.

Of course, George, I really believe that, having been a member of Congress all these years, that we have to have more of a partnership with the Congress. We have to have more consultation. We have to do those things. But there still is only one title of commander-in-chief, one person with that title.

STEPHANOPOULOS: No. 1 issue right now, the economy.

MCCAIN: Yes.

STEPHANOPOULOS: Sen. Obama went at that on Tuesday night, as well.

OBAMA: I admired Sen. McCain when he stood up and said that it offended his conscience to support the Bush tax cut for the wealthy in the time of war...but somewhere along the road to the Republican nomination, the Straight Talk Express lost its wheels because now it is all for those same tax cuts.

STEPHANOPOULOS: He says basically you've sacrificed your principles for the sake of the nomination.

MCCAIN: Well, for a long time I have said that I thought the tax cuts ought to be made permanent. For a long time back, I said, look, we've got to have spending restraint, the way that Reagan did when he restored our economy when it was in the tank, thanks to then-President Carter's mismanagement of the economy, and we entered into a great period of prosperity in America.

Spending restraint is why our base is not energized. Spending restraint is why we are having to borrow money from China, and we've got to have spending restraints, in my view.

But to impose on the American people what essentially would be a tax increase of thousands of dollars per family in America is not something I think -- well, I'm sure would be bad for the economy of this country.

STEPHANOPOULOS: So on taxes, are you a "read my lips" candidate, no new taxes, no matter what?

MCCAIN: No new taxes. I do not -- in fact, I could see an argument, if our economy continues to deteriorate, for lower interest rates, lower tax rates, and certainly decreasing corporate tax rates, which are the second-highest in the world, giving people the ability to write off depreciation in a year, elimination of the AMT.

There's a lot of things that I would think we should to relieve that burden, including, obviously, as we all know, simplification of the tax code.

STEPHANOPOULOS: But under circumstances would you increase taxes?

MCCAIN: No.

STEPHANOPOULOS: How about -- what else would you do right now to get this economy moving again? A lot of people are worried about it. Many Democrats have said and many outside economists have said we're in a recession right now. Do you think we are?

MCCAIN: I think, according to what the experts, Bernanke and others, are saying, we're very close to it, in fact, closer to it than we have been, you know, for some time.

I think it's very important that we send a signal to the American people we're going to stop the earmark pork-barrel spending. Is that a huge part of the budget?

(CROSSTALK)

MCCAIN: Because it's out of control. Well, one reason is, if you -- in the last two years, the president has signed into law $35 billion worth of pork-barrel projects. That would have been $1,000 tax credit for every child in America. Wouldn't it have been better for our economy to give $1,000 tax credit for every child in America, as opposed to a bridge to nowhere in Alaska?

And it also has a confidence impact, a confidence impact that the American people see their tax dollars being frittered away in wasteful and unnecessary spending, which, by the way, Sen. Obama has engaged in heavily and Sen. Clinton has engaged in heavily. They bought in.

They're talking about change? I want change to be stop this waste of American tax dollars.

STEPHANOPOULOS: But is that really the answer to the housing crisis we're seeing right now, the credit crunch we're seeing?

MCCAIN: It is...

STEPHANOPOULOS: The anxiety Americans are feeling?

MCCAIN: Well, I think we've got to -- I'm glad we did the stimulus package. I think we need to have lower interest rates. I think we need to eliminate the AMT. I think we need to have depreciation in one year of business investment.

I think we need to reduce the corporate tax rate, which is the second highest in the world, only exceeded by Japan. I think there's a long series of steps we need to take, and many of them we haven't even contemplated yet, if necessary.

But having the impact of a tax increase is certainly not one of them. And that is what Sen. Obama and Sen. Clinton are saying.

STEPHANOPOULOS: They have also said, both Sen. Obama and Sen. Clinton have said we need a government fund to provide -- to help borrowers who are facing foreclosure on their homes. Good idea?

MCCAIN: I don't think so, yet. We have the FHA working. We have a number of institutions working with them.

But I will be glad to do whatever is necessary to relieve the burden of people who are legitimate borrowers who see their home loan interest payments so high -- mortgage payments so high that they can't afford it anymore.

But I don't want to reward people who engaged in speculation. And I certainly don't want to reward institutions that engaged in the practice of lending people that couldn't afford to pay back the loans.

STEPHANOPOULOS: But you're open to helping homeowners?

MCCAIN: I am open to helping homeowners. I would rely to a large degree on the situation (inaudible) but also people like Secretary of Treasury Paulson, who the financial markets and a lot of us have a great deal of faith in. If more needs to be done, I'm for doing more.