JONATHAN KARL, HOST: Senator Paul, thanks for joining us here in Manchester, New Hampshire.

SEN. RAND PAUL (R), KENTUCKY: Sure.

KARL: So you won the last couple of straw polls. There's a poll here in New Hampshire that had you in the lead. There's a poll nationally, a CNN Poll, that has you in the lead.

Are we supposed to consider you the frontrunner now for the nomination?

PAUL: You know, I don't know if that's good luck or bad luck.

So why don't we not go there?

(LAUGHTER)

PAUL: Um, but, uh, I guess it's better than not being noticed. And, uh, also, no matter what happens, I think the Republican Party needs to evolve, change, grow if we're going to win again.

And so I do want to be part of that. And that's been much of the reason why I've been out on the road, is trying to bring a new message to new people.

KARL: Well, I've watched it. You've been out to Berkeley, Howard University, Detroit. I mean you're going after audiences that we don't see Republicans go after - minorities, young people. They voted overwhelmingly for Barack Obama.

What is your party doing wrong to alienate so many young voters and minorities?

PAUL: You know, it's a hardened resistance. It's been going on for decade after decade after decade. So it's not going to be easy to change. We got 3 percent of the vote in Detroit.

But it is all - also only up side…

(CROSSTALK)

KARL: - for you to go to start off a…

PAUL: Well, there's almost no down side potential…

(CROSSTALK)

PAUL: - so there's all - only up side.

But what I would say is that there are no new ideas on the Democrat side. There's not one Democrat that's offered to help the people in Detroit. I went to the people of Detroit and I offered them a billion dollars of their own money to try to help them recover.

You don't have to send your money to Washington for 10 years, we'll let you keep your money. And it's something I'm offering to help them in Detroit, because I do care about long-term unemployment and jobs. And we can help them. And it's different than anybody else is offering. And not one Democrat has an alternative.

KARL: Well, you're offering tax cuts. I mean if you don't have a job, if you're in poverty, tax cuts aren't going to help.

PAUL: Well, here's the interesting thing is, when you cut taxes in Detroit for 10 years, yes, the people who get more of a tax return are the people who pay more, but they own the thriving businesses. It's not - there's not zero businesses in Detroit. Maybe there should be 10,000 and there's only 1,000, but if you cut the taxes for those 1,000, or whatever the number is, over 10 years, it equals $1.3 billion and that money will be left in the hands of businesses that people in Detroit are already voting on, whether it's a Walmart or a Kroger or a pizza pub like this, people are voting on businesses in Detroit. They're surviving. Let's grow those businesses and they will employ more people.

It's better than what the Democrats do. President Obama said, here's some money, start a business. Well, nine out of 10 businesses fail, so he gives it to the wrong people. Think Solyndra. He gave $500 million to one of the richest guys in the country and it was squandered.

So what I'm saying is I'm just going to let people keep their own money.

I'm also not call - asking Houston to bail out Detroit. I'm going to let Detroit bail themselves out.

But it is a policy that will help people get jobs.

KARL: So you saw Eric Holder suggest there was a racial dimension to the intensity of the criticism that he has faced and Barack Obama has faced. Nancy Pelosi suggested race could have been a factor, uh, with the way Republicans have walked away from immigration reform, uh, in the House.

Did - does this make it harder for you to - to appeal to those groups?

PAUL: You know, I'm one of the few who has worked with Eric Holder. I had lunch with Eric Holder two or three weeks ago. I'm more than willing to work with anybody in the administration. It doesn't have anything to do with the color of their skin. But I'm much more than willing to work with liberals or people I don't agree with on some issues, like getting people back the right to vote when they've done their time, getting, uh, people a second chance, trying not to put people in jail for 50 years for youthful mistakes.

I will work with Eric Holder and the president on these things. And I will actually compliment them when they're right.

I think Eric Holder, on giving people a second chance and not putting our kids in prison for 50 years for marijuana, I think he's right. And so I'm not afraid to say he's right, either.

But I don't - I don't - I guess I don't get into the whole racial thing because I - I can't even imagine that that is a component for anyone.

KARL: So you don't think any of the intensity of the criticism that - that he's faced or - or President Obama has faced…

PAUL: I've - I've seen - I've seen none of it. I mean people have tried to say, oh, some people in Kentucky have a racial animosity to the president. I've never heard one person, now, we don't like the president because of the war on coal. But that's an issue. And the reason we don't like the president is the whole eastern half of our state, and the western half of our state, have hundreds and hundreds of people who had good middle class jobs that have lost their job because of the policies of President Obama.

But I've never heard one person mention race. And so I can't say nobody has that in their mind. But I'm saying I've never ever heard it. And for me, the only thing that motivates me is policy. And I'm also willing to give the president credit for pardoning some people and also for working on some of this, uh, the war on drugs to make it more equitable.

KARL: So I'm sure you saw Jeb Bush's comments on immigration. He talked about how we shouldn't let the immigration issue rile people up and that, uh, for - for many illegal immigrants who came into this country, it was an act of love.

PAUL: Right.

KARL: Do you agree with him on this?

PAUL: You know, I think he might have been more artful, maybe, in the way he presented this. But I don't, uh, want to say, oh, he's terrible for saying this. If it were me, what I would have said is, people who seek the American dream are not bad people. However…

KARL: - even if they came into this country…

PAUL: - well, then…

KARL: - illegally?

PAUL: - but here's the way I'd finish up with. They are not bad people. However, we can't invite the whole world. When you say they're doing an act of love and you don't follow it up with but we have to control the border, people think, well, because they're doing this for kind reasons, that the whole world can come to our country.

I saw a survey that said 700 million people would move to America if they could. We can't really absorb 700 million people, nor can we absorb even tens of millions of people.

So we do have to have some controlled access to our country.

But the sentiment that if you came here looking for the American dream, I agree with it, you are not a bad person, but it doesn't mean the invitation can be open to everyone.

KARL: Well, there's also a suggestion that Republicans in - in previous campaigns have vilified those who came over illegally…

PAUL: And some people perceive it that way. And that's a perception we do have to change. That's why I say it the way I did, if you want to seek the American dream, you're not a bad person. But it doesn't mean we can have open borders. And I think his statement, while I don't think that was his intent, that's what people on the right took out of this is oh, my goodness, is he saying because you love people in Mexico, they can all come?

KARL: Right.

PAUL: You know, so there have to be rules and I was big on saying I'm for immigration reform, but you have to secure the border first and you have to make sure that we're not offering the welfare state to those who come, we're offering work, but we're not offering, really, voting or the welfare state.

What we're offering is a chance to work in our country. And then there will be an orderly process for immigration, but it cannot be open borders and it can't be uncontrolled.

KARL: So I want to turn to foreign policy. Some tapes of you over the last few years have emerged recently…

PAUL: I love the old tapes…

KARL: - criticizing…

PAUL: - is that great?

KARL: - (CROSSTALK) the old tapes…

KARL: - it's like - it's like a…

PAUL: - the old family pictures, you know.

KARL: Family video, yes.

PAUL: Yes.

KARL: You know, the home movies.

But - but you were very critical of Dick Cheney. You suggested that he was opposed to going into Baghdad in 1991, but then was in favor of it when he became vice president because of his financial ties to Halliburton.

Do you really think that Cheney was motivated by his financial ties to Halliburton?

PAUL: I would say the conclusion that I don't want people to take is that I'm questioning his motives. I'm not questioning his motives.

KARL: You sure look like you are questioning his motives.

PAUL: Well, here's - here's what I'm questioning, I'm questioning exactly what Eisenhower questioned in the '50s. He said, we have to be wary that people could have a conflict of interest, that the military-industrial complex could influence people's decisions.

But I don't think Dick Cheney did it out of a malevolence. I think he loves his country as much as I love the country. But what I would say is that it isn't - there's a danger to having a revolving door from government to Wall Street and also from government to contractor back to government. There is a danger that your decisions could be influenced. And I think we have to be careful of that. And I think that's why I do favor some form of campaign finance reform, because I think people who make, for example, the one company in question had a $7 billion no bid, non-competing contract.

I think not having competition in contracts is a serious problem and you could have undue influence if there's not a competitive bidding process.

KARL: But you said we don't want our defense to be defined by people who make money off the weapons.

Are you suggesting that's why we went to war in Iraq?

PAUL: No. No.

KARL: That our defense was being defined by people making…

PAUL: No.

KARL: - money off weapons?

PAUL: - and that's why I'm also saying that I'm not questioning Dick Cheney's motives. I think he's as patriotic as I am and wanting the best for his country.

But I do think that when people go from high levels of government to high levels of industry that are dependent on government money, that there is a…

KARL: Halliburton.

PAUL: - there's a chance for a conflict of interest. And what I was pointing out is I don't know the conclusion, is that at one point in time, he was opposed to going into Baghdad, that he was out of office and involved in the defense industry and then he became for going into Baghdad.

Now, his decisions could have changed…

KARL: And you see a connection?

PAUL: No, I'm just saying his decisions could have changed for a variety of reasons. But what I would say is that because of the - that there could be an appearance of a conflict of interest, that we need to be careful - and I'm all for rules. For example, when a senator leaves office, there are restrictions on how quickly they can go back into industry. I'm for making those tougher.

I don't like that people are going from the Senate and the White House and Congress over to Wall Street and then back again.

KARL: So…

PAUL: I think there is something that needs to - there need to be - when people get upset about campaign finance reform, they're upset that there could be someone using government for their own personal benefit.

I - I'm not saying that that's what happened. I'm saying that if the appearance is there, the people are saying could this happen, we need to have some rules on how people go from government into private industry and back.

KARL: Now, more broadly on foreign policy, I'm sure you saw Liz Cheney said Rand Paul seems to get his foreign policy talking points from Rachel Maddow. Uh, Dick Cheney said we have to be concerned about isolationism in the Republican Party, clearly talking about you.

What's your response to that?

PAUL: It's kind of funny, because it's funny that my talking points would come from Rachel Maddow. She is not been my biggest champion. I don't know if you want…

(CROSSTALK)

KARL: - there is a little history there, yes.

PAUL: She is - she is not my biggest champion. So that's a kind of a funny remark, I think.

KARL: But - but if you look at it, I mean you look at drones, you look at NSA surveillance, you look - you were one of two senators to vote against the, uh, the Ukraine bill. You were, uh, one of two senators that voted against a resolution on Iran and nuclear weapons. I mean you're - on these issues, you are more closely associated…

PAUL: Well…

KARL: - with maybe not MoveOn.org or (CROSSTALK)…

PAUL: No, I think that's a…

KARL: - the left (CROSSTALK)…

PAUL: - I think that's an incorrect - an incorrect conclusion. You know, I would say my foreign policy is right there with what came out of Ronald Reagan, Caspar Weinberger, the first George W. Bush. Right out of there from the school of realism. I consider myself to be a foreign policy realist.

And what I would say is, that the most important function of the federal government is the defense of our country.

So I believe in a robust, uh, military. I believe in a, uh, military that - who has a great deal of strength and through that, we deter attack and then we bring about peace. So the peace through strength that Reagan talked about is exactly what I favor.

KARL: But Reagan went through a huge defense buildup. One of the first things you did when you got elected was propose a $50 - nearly $50 billion cut to the Pentagon. I mean bigger than the sequester.

PAUL: In proposed increases in spending. I haven't really had a - a dip down in spending. Sequester actually didn't cut spending. The sequester cut the rate of growth of spending over 10 years…

KARL: But the point is, you proposed curbing defense spending more than the sequester.

PAUL: Well, defense spending doubled from 2001 to when I came into office in 2011. So we've doubled defense spending. That needs to be acknowledged.

We need to acknowledge that even though I believe national defense is the most important thing we do, but it isn't a blank check, that, really, the Pentagon should be audited, that we can't just give away money. We can't have $500 hammers and $1,000 toilet seats.

KARL: Right.

PAUL: So the Pentagon, some conservatives think oh, give them whatever they want and that everything is for our soldiers and they play up this patriotism that, oh, we don't have to control defense spending.

Yes, we have to control defense spending also. We - if we want to be a strong country, if we want to defend ourselves and project our strength around the world, we can't be a trillion dollars in the hole every year.

So running a deficit makes you a weaker nation and the defense hawks who want to criticize me for not spending enough, they are running us into debt and that will create a weaker country and ultimately open us up to attack.

KARL: I also want to ask you, I interviewed Ted Cruz and he said he disagrees with you on foreign policy and said that he believes the United States has a responsibility to defend our values.

PAUL: Right. What I would say is that, uh, the defense of our country is the most important thing that our government does, that I have followed Ronald Reagan since I was a kid. I went to the 1976 national convention. So we've been supporters of Reagan from the very beginning, supporters of peace through strength and supporters of a robust military. And the only thing I would say to others is they need to characterize their position, not try to mischaracterize mine.

KARL: So is Ted Cruz mischaracterizing your position on…

PAUL: Well, I don't know.

KARL: - foreign policy?

PAUL: What I'm saying is, is that my position is for a robust national defense and that it's the primary concern, above all other concerns, for the federal government.

KARL: So I want to ask you about Iran.

Two things.

One, um, in 2012, there was a resolution saying that the United States should do anything possible to prevent Iran from getting a nuclear weapon. You were one of two, I believe…

PAUL: Right.

KARL: - to vote against that. This - everybody else…

PAUL: Right.

KARL: - all the Republican - why did you…

(CROSSTALK)

PAUL: I've repeatedly voted for sanctions against Iran and I think all options should be on the table to prevent them from having nuclear weapons.

KARL: But why did you vote against this resolution?

PAUL: This particular resolution, I tried for six months to attach an amendment to it saying that we should not - it had to do with containment. We should not have containment as our policy, which I agree, in preventing them from having a nuclear weapon.

The way they wrote the resolution - and I'm a stickler on what the wording is, because I don't want to have voted for something that declared war without people actually thinking through this.

The way they worded it is they said containment will never ever, ever be our policy. We woke up one day and Pakistan had nuclear weapons. If that would have been our policy toward Pakistan, we would be at war with Pakistan.

We woke up one day and China had nuclear weapons. We woke up one day and Russia had them. That doesn't mean I was for any of that. And I think we should do everything possible to keep Iran from having it.

But people who say they want to say and beat their chest and say, by golly, we will never stand for that, they are voting for war, should we wake up one day and Iran has a nuclear weapon. That doesn't mean I'm for Iran having a nuclear weapon, nor am I for containing Iran…

KARL: But you…

PAUL: - but I would say that it is silly and it is a mistake to say never to things that you don't want the future holds.

Most of this is done for show. It's done for bravado. And, really, didn't affect the policy, other than people can go home and say I'm stronger than you are, I'm more for war than you are. And so it didn't make any sense.

KARL: So do you think the United States could live with a nuclear-armed Iran?

PAUL: I think it's a mistake for them to get nuclear weapons and we should do everything possible…

KARL: Clearly, everybody agrees with that. But if they cross the threshold…

PAUL: Right.

KARL: - is it something we could live with? Could we contain it?

PAUL: I think it's - I think it's not a good idea to announce that in advance. And see that's sort of the problem of this. They were announcing in advance we will never contain them. If I'm wanting to be one of the leaders in the country and am one of the leaders in the Senate on the Foreign Relations Committee, should I announced to Iran, well, we don't want you to, but we'll live with it?

No, that's a dumb idea to say that you're going to live with it. However, the opposite is a dumb idea, too. So it's a dumb idea to say oh, we - it's fine for Iran to have nuclear weapons. They'll just go ahead and do it.

But it's also not a good idea to say never ever and that it means automatic war, because we woke up and China had them. We woke up and North Korea had them. We woke up and India had them, Pakistan.

We would be at war with most of the world right now. We would be in an all-out ridiculous nuclear war with Russia and China and everything else if we preemptively said we won't, you know, that there is no way it will ever happen. I didn't say we should talk about it or indicate one way or another, other than to say it's a bad idea and we're going to do everything possible to keep Iran from having nuclear weapons.

KARL: Obviously, your father ran for president more than once. Uh, you - you helped him along the way.

Did you - what did you learn from your father's campaign for president?

What - what did you learn not to do?

And has he given you any advice?

PAUL: You know, the only thing I would say I've learned along the way - and I did do some travels when he was doing it. It's an onerous task. It's, you know, a lot of work and a lot of traveling. But he always did it with a good attitude. He seemed to enjoy himself.

And I think if you do it with this sort of oh, my goodness, my - my whole life depends on winning some election, I think you make things to be too serious and you forget about what the important things are in your life.

You know, in my life, the important things are my family and making sure everything goes well with the my family. My country is important, too, and I want to do what I can, but I think if you get lost in things and obscure some of the important things that, uh, are really important to every individual, you'll make big mistakes in your life.

KARL: Have you convinced your wife to run?

(LAUGHTER)

PAUL: In my place, that's what I really need to do.

KARL: Well, yes. You've said, though, it's going to depend on her decision.

PAUL: Yes, well, there's - there's two votes and at least one undecided still in the house, but I'm working on her. So we'll see.

KARL: When are you going to make the decision by?

PAUL: Uh, not until after 2014 elections.

KARL: OK. Senator Paul, there's a lot for joining us here in Manchester.

PAUL: All right.

PAUL: Thank you.

KARL: Thank you.

END