The following is a partial transcript of the Oct. 5, 2008, edition of "FOX News Sunday With Chris Wallace":
"FOX NEWS SUNDAY" HOST CHRIS WALLACE: And hello again from FOX News in Washington. Well, it was a week of high stakes from the campaign trail to the congressional battle over how to save the economy.
And joining us now are two key senators. Joe Lieberman, an independent who is one of McCain's closest allies in the Senate, comes to us from his home state of Connecticut. And Claire McCaskill, national co-chair for Obama, joins us from her home state of Missouri.
Well, Senators, top Republican strategists say that John McCain will launch a new assault on Barack Obama's character in this final month of the campaign, going after his ties to former radical William Ayers and convicted developer Tony Rezko, and Governor Palin did just that yesterday. Let's take a look.
(BEGIN VIDEO CLIP)
REPUBLICAN VICE PRESIDENTIAL CANDIDATE SARAH PALIN: Our opponent is someone who sees America as imperfect enough to pal around with terrorists who targeted their own country.
(END VIDEO CLIP)
WALLACE: Senator Lieberman, is all that fair game, an attack on Barack Obama's character?
SEN. JOE LIEBERMAN, D-CONN.: Well, it is fair game, and I want to get back to that in a minute.
But the McCain campaign hasn't announced that it's going to spend the next four weeks in negative campaigning. This campaign is about the future, as Governor Palin made clear the other night when she said, "Say it ain't so, Joe."
Senator Obama and Senator Biden seem to be running against George Bush. He's not on the ballot. John McCain and Sarah Palin couldn't be more different from George Bush, and they're the reformer ticket. They're the change ticket. They're the ticket that has been tested.
John McCain has been tested in crises time and again. This is a nation in economic crisis, not to mention the wars we're facing, and I think you go with the tested leader as opposed to one, Senator Obama, with all respect, gifted but not tested in these kind of difficult circumstances.
LIEBERMAN: He also raised...
WALLACE: If I may, on the front page of the Washington Post and the New York Times yesterday, a top McCain strategist named Greg Strimple was quoted as saying, "We want to turn the page on the economy and start talking about Obama being an out-and-out liberal. We want to talk about his character."
So the Obama -- the McCain campaign is on the record saying exactly that.
LIEBERMAN: Well, I must say I don't know Greg, but I know John McCain. And I know John McCain will be campaigning on what he can do to protect the safety of the American people and protect our economy.
But these questions about Senator Obama are what public life is all about these days. I can tell you -- Claire can tell you -- anything you've ever done, anybody you've ever been with, will be a subject of public discussion if you run for public office, all the more so because Senator Obama is relatively new on the national stage.
So it was the New York Times on that front page yesterday who wrote about his relationship with Bill Ayres, who founded the Weather Underground, a group that bombed public buildings and apparently is unrepentant about that.
If the shoe was on the other foot and John McCain had one of his earliest campaign events at the home of somebody who had formed a right-wing group that had bombed buildings and then had been on a board with the guy for several years, you bet the Obama campaign would have been raising that question. It's just the way it is.
But this is about the future. And I think the McCain-Palin ticket has a program to protect America's safety and get this economy going again, and it's very different from the George Bush approach.
WALLACE: Senator McCaskill, Barack Obama is responding with an ad of his own that questions John McCain's stability. Let's take a look at that.
(BEGIN VIDEO CLIP)
NARRATOR: John McCain, erratic in crisis, out of touch on the economy -- no wonder his campaign wants to change the subject, turn the page on the financial crisis, by launching dishonest, dishonorable assaults against Barack Obama.
(END VIDEO CLIP)
WALLACE: Senator McCaskill, is that where this campaign is headed, personal attacks on both sides?
SEN. CLAIRE MCCASKILL, D-MO.: Well, first of all, I think -- let's talk first about what Sarah Palin said yesterday. I mean, really, how ridiculous. American people deserve so much better.
Do they really think America is going to think that Barack Obama's palling around with terrorists? What that man did Barack Obama has condemned. And by the way, he did it when Barack Obama was 8 years old. Come on.
Now, on the other hand, if you look at what Barack Obama's ad says, it's just talking about what John McCain did the last two weeks. He was erratic. One day, no bailout. The next day, a bailout. One day, "I'm suspending my campaign." The next day, "I'm not."
One day, "I'm going to debate." The next day, "I'm not going to debate." The next day, I go ahead and debate. One day, "I'm not going to leave Washington until we have a deal," and then he's on a plane out of Washington after the deal's kind of blown up. So it really -- there has been a lot of erratic behavior.
And I'll tell you what the American people want, Chris. They're hurting. They don't want character attacks. They don't want somebody doing publicity stunts. They want somebody who understands that they're hurting and has an economic plan that's different than George Bush's.
The reason we're looking back is because John McCain's economic plan is more of the same -- tax breaks for the wealthy, tax breaks for big corporations -- and that's exactly the philosophy that drove us into this ditch in the first place.
WALLACE: Well, Senator Lieberman, both of you seem to say that the American people want to hear about the issues, but it is Governor Palin who talks about palling around with terrorists, and it is the Obama campaign that talks about McCain erratic in a crisis.
So I mean, it isn't the American people who -- or the media who are forcing you to doing this. You're doing this.
LIEBERMAN: Yeah. Well, in the midst of it all, I think you saw Senator McCain, unlike Senator Obama, come off the campaign trail, because that's John McCain in the middle of a crisis. He doesn't say, as Senator Obama did, "If you need me, call me." He gets back because he wants to solve a problem.
And in fact, he helped. When he came back, there were only four Republicans in the House who were going to support that rescue plan. At the end, 91 of them voted for it.
So I wish we could get back to all the differences of policies, because that's what this is about. It's about the future.
And look. John McCain believes in tax cuts for business and individuals because when you're in a recession, as we are, that's one way to get us out of the hole.
He's also not going to allow the kind of spending that President Bush has allowed to occur. He's going to -- he said he's for a freeze on non-imperative spending, and he'll then go through the budget and cut unnecessary spending.
And I think his energy independence program is also a job creation program and a program to reduce the cost of fuel...
WALLACE: Senator Lieberman?
LIEBERMAN: ... to the American people. That's a program for the future.
And John McCain has the proven record of working with people in both parties, which Senator Obama does not have, of taking on vested interests in his own party, which Senator Obama does not have, that will make these things happen.
WALLACE: Senator Lieberman, let me...
LIEBERMAN: So this is about who can lead America.
WALLACE: Let me ask one more question of you, and then we'll get off this and move on to the issues that you say...
WALLACE: ... that you want to talk about but which the campaigns and the candidates are not talking about this week.
In April, McCain condemned state Republican parties for linking Obama to his former pastor, Reverend Wright. He said that was over the line. Does he still feel that's off-limits? And will he denounce any efforts by independent groups that bring up Reverend Wright?
LIEBERMAN: Well, you'd have to ask John that. But I can tell you that I was with him when he made that decision. He didn't like that approach. It took a lot of guts to tell the state Republican party not to run that ad.
And in fact, you know, Senator Obama has really been spreading falsehoods about John regularly since then about his tax plans, about his health care plans, which are good for middle-class America.
So as far as I know, Senator McCain feels that same way about bringing up Reverend Wright through his campaign. And that's the kind of line-drawing that I think John McCain is all about.
And I'd like to see some of that from the other side, which I don't think has been fair or balanced in their estimate of John McCain.
MCCASKILL: Chris, I think -- I think it would be very simple.
WALLACE: Go ahead, Senator McCaskill.
MCCASKILL: I think it would be very simple. John McCain can pick up the phone today and call Sarah Palin and say, "Don't say things like that. There's no place for that in this campaign. The American people don't want that."
And there is a difference between the tax plans, and those differences have been pointed out by independent groups. And they have said that overall, Barack's plan is a tax cut, and it's paid for, and the middle class is going to get it, not just wealthy people. That's the difference between these two candidates.
We are happy to talk about health care. We are happy to talk about the economy. We don't want this to be a character attack. It should not be a character attack.
And I hope -- I hope -- John McCain is a strong enough leader to tell at least his vice presidential candidate to knock it off.
WALLACE: Senator McCaskill, let's talk about tax plans. The McCain campaign is running a new ad on the Obama tax plan. Let's take a look at that.
(BEGIN VIDEO CLIP)
NARRATOR: Who is Barack Obama?
OBAMA: I'm a tax cutter.
NARRATOR: Really? Senator Obama voted 94 times for higher taxes -- 94 times. He's not truthful on taxes.
(END VIDEO CLIP)
WALLACE: Senator McCaskill, I know the Obama camp flatly denies that figure, but when you combined Obama's proposed hikes in the income tax and the payroll tax, IRS figures show that two-thirds of all small business income would, in fact, be subject to higher taxes under Obama's tax plan.
MCCASKILL: Chris, 95 percent of small businessmen in this country make less than $250,000 a year. That is, in fact, the facts. And the bottom line is if you make less than $250,000 a year, you're not going to see one thin dime of any kind of tax increase under Barack Obama's plan.
WALLACE: But would you deny, Senator McCaskill, that two-thirds of all business income -- I'm not talking about the number of businessmen. I'm talking about the income that they get. Two-thirds of their income would be subject to higher taxes under the Obama plan.
MCCASKILL: I guess that's one way of saying that there's a few people making a lot of the money, and that's exactly the differences between these two plans.
Ninety-five percent of small business people make less than $250,000. They're not going to see any tax increase, only those people who make more than $250,000.
And let me say about the ad, that ad is so misleading. And Joe knows it. Those votes were on continuing resolutions. If you use the same marker for John McCain, he has raised taxes over 400 times. It's a way of twisting votes to make the record look misleading to the American people.
The only difference between John McCain and Barack Obama -- they're both cutting taxes. It's just who are they cutting them for, middle America or the same people George Bush cut them for.
WALLACE: Senator McCaskill, let's bring in Senator Lieberman.
You wanted to say something?
LIEBERMAN: Well, I did. I mean, the fact is that -- part of this is whose definition -- the definition of who's rich. A lot of those small business -- that 95 percent of small business people is the number I've got to check, Claire.
But when you raise taxes on small business people -- they create most of the jobs in America. They employ most of the people in America. If you raise their taxes, they're going to cut jobs and people are going to be out of work. That's the last thing you want to do when you go into -- when you're in a recession, as we are now.
Secondly, Senator Obama is raising the capital gains tax. I know most capital gains are enjoyed by people who have more money, but a lot of Americans have their hopes for retirement, security and the nest egg to send their kids to college in stocks.
And the value of those stocks will drop even more than they've already dropped if Senator Obama gets to impose his increase in the capital gains tax.
WALLACE: Senator Lieberman?
LIEBERMAN: And John McCain has a pro-growth program. Senator Obama has a higher tax program which will cost jobs.
WALLACE: Senator Lieberman, let me ask you, though -- I was struck by the fact that you said that we're in a recession now. We lost 159,000 jobs last month. That's nine straight months of losing jobs, a total of 760,000 jobs.
Do you believe that we are in a recession now? And isn't this an almost impossible political climate for a Republican to succeed a Republican president?
LIEBERMAN: Well, I don't know whether the economists would say it's a recession, Chris, but I can tell you the people in Connecticut and the people I talk to around the country know it's a recession. And unfortunately, I believe it will even officially be a recession, and that's why the question of who our president is is so important.
Look, the American ship of state is going into a storm right now and the question is, "Do the American people want as the captain of our ship of state somebody who's gifted but has never led a ship through a storm like this, or somebody like John McCain, who has been tested throughout his life time and time again, shown the strength of leadership, the ability to bring people on the crew of the ship together to get it through the storm, back into the sunshine?" And that's McCain.
So yes, it's a tough environment. It's kind of amazing that John McCain is as close as he is today, about six points behind, when you think about the fact that he has the same party label as the current administration. But it's because the American people know he's a different kind of Republican.
And look. I'd just say this, Chris. In 2000, there was a Democratic ticket with Al Gore and a very impressive senator from Connecticut whose name I forget. They were six points behind with less than two weeks to go, and they won -- well, at least they got more votes.
So don't count John McCain out. When the going gets tough, John McCain gets going.
WALLACE: We've got about two minutes left, and I want to split it evenly between the two of you.
Let's turn to Sarah Palin, who I think we would all agree is one of the most exciting and unusual political figures we've seen on the scene in a long time and certainly connects with millions of working- and middle-class voters.
But I want to ask you both as serious public servants -- and I'll start with you, Senator McCaskill -- is she ready to be president of the United States?
MCCASKILL: Well, I don't know, and -- but I think more importantly, if you look at the debate and what the American people are seeing, there was style versus substance. Clearly, she's likable. She was poised and confident, very telegenic, loves the camera.
But if you look at Joe Biden, how substantial his debate performance was on all of the factual challenges that face our country -- complex problems. He understands. And most importantly, he was able to lay out a very clear path forward out of this economic mess.
And you know why Sarah Palin couldn't? Because the policies they embrace are the exact same policies that this administration has embraced in terms of economic growth. It didn't work.
MCCASKILL: And I think Joe Biden did a very effective job of that. I think Sarah Palin is very nice. I'm not sure if she's ready or not. The American people are going to have to decide that.
WALLACE: Senator Lieberman, you've got about 45 seconds, and I ask you...
WALLACE: ... as a serious man, are you...
WALLACE: ... really persuaded that Sarah Palin is ready to step into the presidency?
LIEBERMAN: Yes, she passed on Thursday night a threshold of credibility for national leadership. She was confident. She was decisive. She was informed.
And I'll tell you, for people who were trying to make her into an extremist, I thought she was very practical and mainstream. She was real. She has characteristic American optimism. She was about the future. And I think she showed us why John McCain chose her.
They're the ticket that will really bring change to Washington. John McCain and she have done it before, and that's what we need in Washington now. So I think she created a turning point in this campaign. Hold onto your seat belts for the next four weeks. This thing is not over.
WALLACE: Senator Lieberman, Senator McCaskill, we're going to have to leave it there. We want to thank you both. And the Lord knows we would like to have an exciting final month.
Thanks for talking with us, and we'll see you both along the campaign trail.
LIEBERMAN: Thanks, Chris.
MCCASKILL: Thank you, Chris.
LIEBERMAN: Take care.
MCCASKILL: Thank you, Joe.