This is a partial transcript from Hannity & Colmes, June 26, 2003  that has been edited for clarity. Click here to order a transcript of the entire show.

ALAN COLMES, CO-HOST: Joining us, former vice presidential nominee Jack Kemp.

JACK KEMP, FORMER VICE PRESIDENTIAL NOMINEE: Alan.

Don't say anything nice about me.

COLMES: It's like I tell Democrats, "You don't want a Hannity endorsement."

Look, you have written a piece on your position on Grutter v. Bollinger (search), the Supreme Court decision on affirmative action. You support what the Supreme Court did on that.

KEMP: I do.

COLMES: And that is an opinion other than many other conservatives on this issue.

KEMP: No. Look, I believe very strongly that we need to make affirmative efforts in America to bring all people into this great Democratic capitalistic economy.

And systematically over the years, African-Americans were not only denied property, they were considered property. And they were denied their 14th Amendment (search) rights. I think education is the one place in which we can begin to make up ground. And compensate for the mistakes that we've made.

COLMES: I thought it was a great decision in that they threw out the undergraduate case where they were awarding points, 20 points out of 150.

KEMP: One point for academic achievement and 20 points for race. I think that was ridiculous.

COLMES: It was good that they did that, but they did agree in a narrow definition of using race as one of a number of factors.

KEMP: An issue.

COLMES: Right.

KEMP: Look, a college admissions office looks at where you're born, who your parents are, what your athletics skills are, what your outside activities are. Should they look at race and socioeconomic conditions? I think clearly this is a positive decision. Supported by businesses all over America, West Point, Annapolis, and the Air Force Academy. Can you imagine our Army without some form of affirmative efforts to make it reflect America? I think it was a good decision.

COLMES: Wish I'd voted for you.

KEMP: Please.

COLMES: You wouldn't want that? All right, fine.

SEAN HANNITY, CO-HOST: That's your first indication you're going, by the way.

COLMES: There's a report out today that the Internal Revenue Service, that they made public, that the number of Americans with high incomes who pay no taxes anywhere in the world has reached a record in the year 2000. And they pay no income taxes and that's up from what it was in 1977.

And you would think that we should restructure, have a tax structure that makes these people pay more, not less income taxes.

KEMP: The tax code is a disgrace. It is counterintuitive, counterproductive. It corrupts decision-making. And here's the case I'm going to make to you.

When you take people into too high a tax bracket, they begin to shelter, take income offshore, and their income tax goes down. In my opinion, and I think Steve Forbes was right, if you tax people at a low rate, I don't mean zero because there's no revenue at zero. But if you tax people at a rate that is simple, fair, and flat.

COLMES: Flat tax? Will it ever happen? Are we just dreaming?

KEMP: That's not the issue. You're asking me why they don't pay taxes. If you tax people at 90 percent, you would get no revenue from the rich. Because all income would be earned offshore.

COLMES: But why can't they throw out the code, have a flax tax and have the first $17,000 or whatever it be, tax everything above a certain amount, have it be a percentage, equal for everybody?

KEMP: I don't think anybody would disagree with that.

COLMES: So why don't they do it?

KEMP: Except Ted Kennedy and Dick Gephardt and all the Democrats who are running.

COLMES: Wait. Dick Gephardt had a flat tax plan a couple of years ago.

KEMP: No, he didn't. I worked with Dick Gephardt and Bill Bradley on reforming the tax code back in 1986. And we get it down to 28. Guess what? Revenue from rich people went up, not down, when they were taxed at 25 percent to 28 percent. In peacetime we shouldn't tax anybody above 25 percent.

COLMES: But it's not just the Democrats who are not in favor of a flat tax. The Republican leadership haven't exactly been, some of them have. But will it ever get through Congress?

KEMP: Every single Democratic candidate for president is running on raising taxes on people above $100,000. And if you tell people above $100,000 that they are somehow rich, you're sadly mistaken.

HANNITY: I want to remind you, this is now the third time we've had you on the program recently. We're going to disagree. And you're with Alan Colmes. That's the first indication you're in trouble.

KEMP: You'll get it right one of these days.

HANNITY: No, no. I get it right.

The 14th Amendment, ratified in 1968, "no state shall make or enforce any law which shall deny any person within its jurisdiction the equal protection of the laws."

KEMP: Read the rest of it. See, that's the trouble.

HANNITY: Hang on a second.

KEMP: It says you shall not be deprived of property without due process.

HANNITY: That's correct.

KEMP: Black people were systematically and systemically deprived of their property. You know what, Franklin Raines of Fannie Mae did a speech at Howard University, upon whose board I proudly serve.

And he said that if African-Americans had been allowed to keep the property that they owned in the 19th Century, they would have more than $12 trillion of property. And today it's $1.2 trillion.

HANNITY: Nobody is disputing the past wrongs or injustices in the world. Discrimination is in its heart and in its soul morally reprehensible and wrong. Nobody is disputing that.

But how do you justify, which is what you're doing in your piece here.

KEMP: No, I'm not.

HANNITY: Wait a minute. You're justifying giving extra credit to people because of their race. Extra consideration to people because of their race. You're using discrimination to end it. How do you justify that?

KEMP: Every decision made by an admissions department at a university takes into that consideration various elements. Where were you born? Who are your parents?

HANNITY: Right.

KEMP: What's your education achievement, what are your SAT's, what's your athletic stills. They take all sorts of things into consideration. I'm suggesting that when you make that choice take two factors into consideration, socioeconomics.

HANNITY: I don't have a problem with that.

KEMP: And No. 2, race to compensate in a positive way, it's positive discrimination.

HANNITY: All right. Positive discrimination.

Here's the point. Explain this to somebody. You know how competitive it can be to get into school.

KEMP: Yes.

HANNITY: You have SAT scores, you have grade point average, you have a young 18-year-old kid, wants to get into a particular school, has better SAT scores, better grade point average. And the person that got the extra consideration on race is now bearing the burden of responsibility of correcting wrongs and injustices. Thereby, you have institutionalized the discrimination you say you hate.

KEMP: No, no, no.

HANNITY: Yes. Sean Hannity is right.

KEMP: Here's why. You're right insofar as you argue that point. I'm right in suggesting that until we have reached a level playing field, we have an obligation, a moral and political obligation, to find a way to make that playing field so level that we truly have that equality of opportunity that I'd grant you want and I want and Alan wants.

And I'm saying that we should spend more money on K through 12. We should have school choice. We need enterprise zones to drive capital into our inner cities because access to capital is the single biggest problem.

KEMP: There's not enough home ownership. There's not enough property ownership. And as Frank Raines pointed out, without property, you can't leverage that asset into capital.

KEMP: And without leveraging assets into capital, you can't start your version of America.

HANNITY: I'm going tell you something, if we want affirmative action.

KEMP: Affirmative efforts.

HANNITY: I'm for affirmative efforts but not based on race. If the single best thing that Jack Kemp and Bill Bennett and the Power America and Sean Hannity can advocate is that we fix the problems in inner city schools coast to coast, border to border, drugs, violence, a lack of commitment to education.

KEMP: All that's well and good.

HANNITY: And unholy alliance between liberals.

KEMP: Sean. Sean, all that is well and good and I know Alan would agree with that.

HANNITY: No, he wouldn't. He's not for school choice.

KEMP: No, he knows.

Well, OK. I didn't mean to be nitpicking here. But the point I want to make is simply this. That not you and not Bill Bennett and not a lot of well meaning conservatives were right. But we, as whites, have all of a sudden become color blind when this struggle has been going on, where were we? Where were we when John Lewis was getting his head bashed in?

HANNITY: Jose Williams was a close friend of mine, a close friend.

KEMP: Were you there?

HANNITY: No.

KEMP: Did you do anything? Did you speak out? All of a sudden you're colorblind.

HANNITY: No, Jack, you're falling into a trap.

KEMP: No, I'm not.

HANNITY: If we don't judge by race or give extra credit for race, then therefore we must have racism.

HANNITY: You just killed your career.

HANNITY: The 14th Amendment, the very purpose of it was to eliminate existence of two classes of citizens. I view this decision as creating two classes.

You have two teachers, equal qualifications, hired the same day in the name of diversity, which is what this decision said. The compelling state interest in diversity.

They had to fire one teacher. They fired the white woman only because of the color of her skin. And it's not fair; it's not just to place the burden of correcting wrongs on one person.

KEMP: I don't disagree with that. There are cases that you can point to that turn your heart inside out. Or your stomach inside out or both. I'd like to know how many black teachers there were in that school. If there were none, would you try to hire a black teacher? Would you, yes or no?

HANNITY: Here's my answer. I can give you a short answer. The answer is, Jack, discrimination on every level is wrong.

You don't put the burden of correcting past wrongs on one person.

KEMP: That is a wonderful theory and I don't disagree. Except for this point. If someone in their history had created a group of teachers that were teaching black children and white children and brown children and Latinos, would you want any teachers in that classroom or in that school that reflected the diversity of America? Yes or no. Yes or no?

HANNITY: I can't answer your question the way you want.

KEMP: Because you gave me a hypothetical.

HANNITY: No, I'm giving you a real case.

KEMP: You didn't tell me how many teachers were white.

HANNITY: I don't know the answer to that. I don't know the answer to how many are white and how many are black.

KEMP: Let me tell you a story, real quick.

Lincoln (search), right before Gettysburg, was given a list of 10 lieutenant generals that he was going to appoint to be full four-star generals, or three-star generals. I forget.

He looked down the list. The 10th was the German name and he picked the name of a German officer. And his aide to camp said, "Well, Mr. Lincoln, why did you pick that name that was German? He's the 10th out of 10."

And Lincoln had a great answer, I thought. He said, "You know, one third of all our troops at Gettysburg are German. I want them led by someone that reflects their culture."

KEMP: In my opinion, you can't do that in every case. Can you find instances where you make mistakes? Yes. But should we try to make this field more level? Yes.

And we have to make up, in my opinion, for the lack of equality of opportunity to access capital property and education that took place in this country.

COLMES: You've got my vote.

KEMP: I don't want your vote. I'm not running for anything.

COLMES: We'll get to an area where we disagree, so you don't get that e-mail from people, you know.

President Bush left out in his tax plan low-income workers who make between $10,500 and $27,000. He had to go back and fix that, the $400 per child tax increase. These people did not get the $600 credit. Why? They have not been fair to people in certain income groups.

They say they're helping out all Americans but that's not the case.

KEMP: The refundable low income tax credit came in under Ronald Wilson Reagan, circa 1981 and '82 with Jack Kemp helping to lead the way, A. B, it helps offset the payroll tax so it should have been done, in my opinion.

But putting that aside for just a moment, in effect, the greatest thing you can do for that low income family, give them a job, give them access to capital, get the tide rising.

The tax cut is never going to be perfectly equal. John F. Kennedy cut the top tax rate by 30. And no one accused him of helping the rich.

COLMES: This group was left out. Now they're going back to fix it after the fact because they know they made a mistake.

KEMP: The point I'm making, rather than a refundable tax credit and I would give it to them to offset the payroll tax. Because the highest tax in America is paid by a welfare woman who loses her welfare when she takes a job. So there should be a refundable tax credit.

But having said that, the best thing you're going to do is create a growing economy.

COLMES: The payroll tax was up to, what, $84,000 a year. Why not have it go higher so that proportionally the people who make more money pay it?

KEMP: The Medicare tax goes all the way up.

COLMES: The payroll tax, you get off the hook if you make over $84,000. You're not paying it.

KEMP: The tax system is corrupt. It should be thrown out and we should have a simple fair low income tax rate closer to 20 percent than 50 percent.

COLMES: OK. Would you agree then the payroll tax should go to higher incomes and not $84,000?

KEMP: No, no, not at all.

COLMES: Why not?

KEMP: The payroll tax is too burdensome on everybody.

COLMES: You want to lower it for everybody?

KEMP: Yes, absolutely. Because you know what I'd do? I'd allow people to take five or six percentage points of their payroll tax and put it into a retirement account that they own that they can leave to their family if they pass on.

COLMES: You would lower Social Security.

KEMP: No. Lower the payroll tax by letting them put it in a retirement fund that's controlled by the market not by a 1 percent rate of return over 30 years.

COLMES: Wouldn't that hurt the amount of money in the Social Security and Medicare?

KEMP: Absolutely not. The only answer to Social Security is a growing economy. Unless your pie is growing and getting more revenue.

HANNITY: Now you're back on track again. Now I'm agreeing with you again.

Listen, affirmative opportunity, fix our nation's schools and every child has a shot at the American dream that's the answer.

KEMP: And enterprise zones.

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