This is a rush transcript from "On the Record," April 11, 2012. This copy may not be in its final form and may be updated.

GRETA VAN SUSTEREN, FOX NEWS HOST: If North Korea does fire a mid-range missile what should the U.S. do next? We asked Senator John McCain about that and about the president's budget plan.

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VAN SUSTEREN: Senator, nice to see you, sir.

SEN. JOHN MCCAIN, R-ARIZ.: Thank you, Greta.

VAN SUSTEREN: The president submitted his budget. Your thoughts on it?

MCCAIN: I'm always looking for a pony, a ray of hope. I think the fact that the president did enact -- or propose some modest changes in entitlement is at least a step in the right direction. Maybe -- I emphasize maybe -- the president is on track to try to begin negotiations owner a grand bargain. Whether or not we will be able to, I don't know. He just had another group of senators for dinner. There's been outreach in other ways that hasn't been there before.

VAN SUSTEREN: Your fellow Republicans on both sides of the hill don't paint such quite a rosy picture of this.

MCCAIN: I'm not trying to paint a rosy picture. I'm just saying this is a departure from the previous four years. The fact he has proposed the issue of the changed CPI, the price index on inflation on Social Security has angered the people in his party on the left. Maybe the president sees that this country is headed for the ditch unless we cure the debt and deficit program, and reforms of entitlement programs has got to be part of that.

VAN SUSTEREN: Do you think there's a willingness of the part of the Republicans on Capitol Hill, we're not overly impressed with the president's budget, but we're going to give it a shot?

MCCAIN: If we don't give it a shot, say we're ready to sit down, then the American people are not well served. There has to be, sooner or later, reigning in of entitlement programs and tax reform. We know that has to happen.

VAN SUSTEREN: Immigration, you want to mooch it faster than, for instance, your colleague Senator Marco Rubio.

MCCAIN: No.

VAN SUSTEREN: No? You don't want to move the process, get it rolling sort of faster?

MCCAIN: No. Somehow people keep saying that when it's not true. We've had a meeting, including Senator Rubio, all eight of us, had a meeting with Senator Leahy. He said he will give it plenty of time, a couple of weeks, before he's even going have a hearing. They could have additional hearings if necessary, also other committees that have jurisdiction. And we don't see anything really coming to the floor before at the earliest sometime in May.

VAN SUSTEREN: The odds that something will get passed, do you want to go out on a limb, say whether we'll get immigration reform, whether two parties can agree?

MCCAIN: I've had tough experience in the past on this issue. For example, there was a poll today that shows the majority of Americans overwhelmingly, including a majority of Republicans, favor a legalization if -- it's a huge if -- people who are here illegally, pay back taxes, pay a fine, learn English, and get in the back of the line.

But first we bring them out of the shadows and give them a legal status after going through certain screening, et cetera. But it's a long time before they're ready to get a green card because there's a backlog of a huge number of people that are waiting already, and we can't let them do anything but go to the back of the line.

VAN SUSTEREN: North Korea, there's a lot of saber-rattling recently, and we're expecting at any moment they could test another midrange missile. In the event that it fires off a midrange missile, we'll be able to knock it down. It's not going to hurt anybody. What's the next step if that happens? I mean, that is another sort of line in the sand.

MCCAIN: It's dangerous. This guy is a clown. He's a fool. So was his father and so was his grandfather. But they do have nuclear weapons. They do have missiles. And 20 miles -- 20 to 30 miles from Seoul is the DMZ. In caves is artillery which can be fired before we can take them out. There's a city of Seoul with millions of people. This is very dangerous business.

Now logically, would he ever contemplate such a thing? I think it's pretty clear this guy and his father and grandfather didn't think like us. We've been through a cycle of confrontation, negotiation, aid and assistance to them. We've given them fuel, lifted sanctions. We've given them food. Meanwhile they've got the world's worst gulag of 200,000 people who are literally starving to death and being tortured and beaten to death in North Korea.

And the key to this is China. The Chinese can control what the North Koreans do.

VAN SUSTEREN: But I've heard that now for years, the same story I've heard for years.

MCCAIN: Yes.

VAN SUSTEREN: Let me go back to the says, that if they fire off another test missile, a mid-range missile, whether it goes in the ocean, wherever it goes, what do we do next?

MCCAIN: I would take it out.

VAN SUSTEREN: Then we say we got it, and that's the end of it?

MCCAIN: No. We show young Kim Jong Un we can take out his capabilities. We can show that to him.

VAN SUSTEREN: Senator, nice to see you. Thank you.

MCCAIN: Thank you, Greta.

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