This is a rush transcript from "On the Record," August 4, 2010. This copy may not be in its final form and may be updated.

GRETA VAN SUSTEREN, FOX NEWS HOST: Are your taxes about to go up? We took a field trip to Capitol Hill where Senate Minority Leader Mitch McConnell went "On the Record."

(BEGIN VIDEOTAPE)

VAN SUSTEREN: Senator, nice to see you.

SENATE MINORITY LEADER MITCH MCCONNELL: Good to be with you.

VAN SUSTEREN: Just to set the stage so viewers are clear where we are. As of January, if nothing is done, the Bush tax cuts expire, which means everybody's taxes goes up, right?

MCCONNELL: Yes, I mean current tax law has been in place for about 10 years. And what the majority envisioned was raising taxes in the middle of a recession on the top two brackets, which, interestingly enough, cover 50 percent of small business income and about 25 percent of the workforce.

Now we think that is a really bad idea. We don't think taxes ought to be increased in the middle of a recession for anyone and will so argue when the debate occurs in September.

VAN SUSTEREN: Right now, though, that is what the -- President Obama wants and the Democrats in the House and Senate is to race those two brackets on a limited number of taxpayers. But the fact is right now as we stand now is if nothing happens everybody goes up in January?

MCCONNELL: If nothing happens it would be a disaster. You'd have a big tax increase on absolutely everybody. We don't think there ought to be a tax increase on anybody, particularly in economic times like we face at the moment.

It is hard to find an economist who thinks it is a good idea to raise tacks in the middle of a recession. And even though the administration argues it is not technically a recession most people think unemployment up close to 10 percent is a recession.

VAN SUSTEREN: As a political matter this is a stumbling block for Democrats because they've said that -- President Obama said when he ran for president he would not raise taxes on people who make less than $200,000 a year. So if nothing happens that campaign promise has been violated.

But the expectation is that the Democrats would do something between now and January.

MCCONNELL: We agree that we ought not to raise taxes on that group that they don't want to raise taxes on. But, where we differ is we don't think we ought to raise taxes on anybody in the middle of a recession.

And so we will have in contrast to their proposal to raise taxes on 50 percent of small business income and impacting 25 percent of the workforce, an alternative that would not raise taxes on anyone.

VAN SUSTEREN: So that I understand the procedure, between now and January something must be done, and so when do you expect that at least there will be -- that they will begin debating in earnest the issue on what happens with either --

MCCONNELL: I think in September we are likely to have this debate on the floor of the Senate.

VAN SUSTEREN: Today you met with the president one-on-one?

MCCONNELL: Yes

VAN SUSTEREN: Done it before?

MCCONNELL: No, this was actually the first time we've gotten together one-on-one. He asked for the meeting, I was happy to go down. And we had a cordial discussion about a whole range of issues that we're dealing with and trying to isolate places where we might have some agreement.

And there are areas where we could potentially reach agreement. He says he's for trade deals, so are we. We think free trade is helpful to America. He says he's for nuclear power. Most of my members are. He says he's for clean coal technology, we're for that. So I think there are some areas where we could make progress on a bipartisan basis.

VAN SUSTEREN: We know where you agree and don't agree, we know the timeline. What is going to happen between now and January?

MCCONNELL: We'll have the debate in September and figure out who prevails.

VAN SUSTEREN: Tell me what you think will happen?

MCCONNELL: I hope we'll do is not raise taxes on anyone in the middle of a recession. I think that's a terrible idea, and we'll have that debate interestingly enough six weeks before the election. We welcome the debate. We think it is a great time to be talking about taxes, particularly when the other side wants to raise taxes in the middle of a recession.

VAN SUSTEREN: Any chance it will be done after the elections?

MCCONNELL: We'll see what happens in September. I don't know how quickly what we end up deciding to do will move through, but the debate will be engaged in September. Whether it is finished in September is another matter.

VAN SUSTEREN: Here's the thing that is distressing to me. You tell me it is going to begin in September. I realize you don't control the time table. You're in the minority party.

But it is not like these -- tax expiration of the tax code is any surprise. We knew for a long time they were going to expire in January. Unless a decision is made teen now and the midterms, it almost feels like the American people are being had, because we want to know, what are you going do?

MCCONNELL: They know what Republicans would do. We would not raise taxes on anybody in the middle of a recession. I don't know why our friends in the majority put this off so long. We all knew this was coming, we all knew this big tax increase was coming unless we acted.

I would have preferred to act sooner, but as you pointed out, I don't set the agenda. I'm not in the majority.

VAN SUSTEREN: The House is back in session Monday or Tuesday on an unrelated issue. It seems to me that on such an important issue where so many small businesses are waiting to see what the government is going to do on taxes is that the longer the House and Senate have this discussion it long it puts off making important business decisions so that we can get the economy revved up.

So I know you deserve a vacation, but couldn't you get started a little sooner?

MCCONNELL: As I just said, I would like to have this debate much earlier. The president had a meeting with a bunch of small businessmen a couple of weeks ago and women and asked why they weren't hiring. And they listed the various items.

And interestingly enough it was his agenda, the health care bill, impending tax increases. No wonder they aren't hiring, because the federal government is throwing a lot of new regulation and taxation and complexity at them.

For example, under the health care bill, every business that now does business with a vendor of $600 or above has to send out a 1099 form to the IRS and to the vendor. An enormous amount of paperwork and complexity has been created by the health care bill. Now they have the possibility of tax increases.

It's no wonder businesses are not expanding. The president's job killing agenda has been a big factor there.