• This is a rush transcript from "Your World With Neil Cavuto," April 20, 2010. This copy may not be in its final form and may be updated.

    NEIL CAVUTO, ANCHOR: In the meantime, a battle is brewing over drilling, a new climate bill expected to force Washington to share drilling dollars with the states bordering the rigs. With the president’s plan to do more drilling, that cash will be growing.

    My next guest says that the money should go to Washington to help tackle the massive deficit. Senator Byron Dorgan is a Democrat from North Dakota, joins us right now.

    Senator, haven’t seen you in a while. Good to have you.

    SEN. BYRON DORGAN D-N.D.: Hi, Neil. How are you?

    CAVUTO: I’m fine, sir.

    DORGAN: Good.

    CAVUTO: So, these border states that are for offshore drilling and some of these others that expect to reap money off of this, you’re saying it ain’t fair unless everybody gets it. Is that right, or no?

    DORGAN: Well, first of all, I offered the amendment in the Energy Committee that opens up the eastern Gulf of Mexico for drilling. I got that done through the committee anyway.

    And the border states, the coastal states say, well, but we want a substantial portion of that money to come to our states. Outside of the nine miles — the first nine miles, they get everything in the coastal states. Outside of nine miles, that revenue belongs to the United States of America and to all the people.

    I don’t want to — I want to use that revenue to reduce the federal budget deficit.

    (CROSSTALK)

    DORGAN: ... percent to the states.

    CAVUTO: Well, I know you’re leaving Washington, Senator, after years of exemplary service, but do you really think, and, in all your history, have you ever seen money that was targeted for deficit relief going to deficit relief?

    DORGAN: Well, 10 years ago, as you know, we had a federal budget surplus. So, clearly some of that revenue must have been for deficit relief 10 years ago.

    My point is this. If we expect $40 billion from those royalties on the Outer Continental Shelf, which belongs to all the American people, I don’t want to reduce federal income by $40 billion in order to give that money to the Gulf states. What I would like to do — that money belongs to the...

    CAVUTO: But isn’t that money really — I understand. But isn’t that money really — the net positive of that money would be, if all our energy prices stabilize, and we relied less on oil from abroad or the Middle East, we all benefit from that, right, every American, regardless of whether you’re on those coastal states or not, right?

    (CROSSTALK)

    DORGAN: Well, but you can’t win a debate we’re not having.

    We both agree that there ought to be drilling in the eastern Gulf. I’m the one that offered the amendment to do that.

    CAVUTO: Absolutely.

    DORGAN: My point is, the royalties from that should come to the federal government to help reduce the federal deficit. If you have less income, the federal deficit increases. So, let’s have this income that is supposed to come to...

    (CROSSTALK)

    DORGAN: ... come here.

    CAVUTO: So, you wouldn’t give any to the states? You wouldn’t give any to the states? Just everyone share, share alike with the federal government?

    DORGAN: The states get all of the royalty on the first nine miles off their shores. Any drilling on — in that area — and there’s plenty of it — they get all of that royalty, 100 percent.

    Outside of the nine miles that, that belongs — on the Outer Continental Shelf, that royalty belongs to all American people, and that includes not just the people who live in coastal states, but the people who live in states that aren’t on the coast. And that money should come to the federal treasury to reduce the federal budget deficit, in my judgment.

    CAVUTO: Because, you know, sir, there are going to be many who argue in a lot of those coastal states that, if they’re going to put up with the headache of rigs going up and digging and drilling going on, that there should be some reward for that anyway.

    But the net reward is going to be hopefully lower energy prices. That will benefit all Americans. It always comes back to that.

    DORGAN: Absolutely. Absolutely.

    And that — and, by the way, that’s why they get 100 percent of the royalties on anything nine miles from their shore.

    CAVUTO: Let me ask you then about deficits, since you raised it.

    There is serious concern that, as you leave Washington, the red ink is piling high and deep in Washington, and that there’s no way out of this, short of dramatically raising taxes. Maybe you can get a handle on spending. I know you have tried to address that.

    But, by and large, Republicans and Democrats have a poor track record on this. So, is it a given, Senator, that tax rates, particularly upper-income tax rates, are going to have to go prohibitively higher?

    DORGAN: I don’t — well, I don’t know that anything is a given, except this. This country cannot continue to provide a level of government service that the American people cannot afford to pay for or won’t pay for.

    And we can’t continue to fight wars and decide we won’t pay for the cost of that. Ultimately, we have got to address this because the current budget deficit is unsustainable. We — if we’re going to have, going forward, a healthy, growing economy that we all want, then we have to address this fiscal policy problem. It’s serious, it’s significant and has to be dealt with.

    CAVUTO: But we don’t. We don’t, right? And, I mean, Republicans and Democrats, they just don’t.

    So, I’m wondering, maybe we could starting digging out of this by addressing entitlements, which you’ve raised, but there’s an idea that has been pushed around by Paul Volcker for some sort of a federal sales tax, a value added tax.

    Are you for that?

    DORGAN: Well, I’m not going to prejudge what this commission that is now meeting — Alan Simpson and Erskine Bowles chair it. They’re talking about all of the issues.