This is a partial transcript of "Special Report With Brit Hume," Aug. 13, 2004, that has been edited for clarity.

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JIM ANGLE, GUEST-HOST: Congressional Democrats got the nonpartisan Congressional Budget Office to issue a new analysis of the Bush tax cuts, which was released today. And the Kerry campaign immediately claimed that it shows the Bush tax cuts actually made the middle class pay more.

(BEGIN VIDEO CLIP)

KERRY: They came out with a study that documents what I and others have been saying over these past months. That over the last four years, the burden of taxes has shifted from the wealthy to the middle class. The middle class is paying more taxes.

(APPLAUSE)

(END VIDEO CLIP)

ANGLE: This is clearly going to be a major issue in the campaign, and Senator Kerry has talked about taxes for two days running now.

To help us figure out what the new report means for your taxes and for the election, we turn to Bill Beach, director of the Center for Data Analysis at the Heritage Foundation.

Bill, welcome.

BILL BEACH, HERITAGE FOUNDATION: Jim, it's good to be back with you again.

ANGLE: And just because you are head of Data Analysis, we won't get into the weeds too far on this.

(LAUGHTER)

ANGLE: Let me ask you, first. The headlines today, as we saw in Major's package, said "Tax Burden Shifts To The Middle." Simple question. As a result of the Bush tax cuts, does anyone pay more in federal taxes?

BEACH: No, as long as the Bush tax cuts are in effect, which is through 2010, we have lower taxes for all taxpayers. For all taxpayers. In fact, we have a lot of taxpayers that don't even pay taxes as a result of this.

ANGLE: Well, I think Major talked about the fact that millions of people have actually been taken off the tax rolls altogether.

BEACH: That's right.

ANGLE: Or moved into a 10 percent bracket, which would lower taxes on fairly low-income earners.

BEACH: That's exactly right. There's been so much reporting on this very important report today that has been well, let me just put it, inaccurate or at least incomplete. One of the things that's really important to understand is that we not only have an income tax in this country, but we have a payroll tax, a corporation tax. We have lots of taxes.

What the CBO did was put them all in the same bucket. But if you don't do anything except work harder over the next 10 years, you're going to probably pay more in payroll taxes. And if are you in the middle class and you are below what's called the cap...

ANGLE: Payroll taxes are Social Security taxes...

BEACH: Social Security, Medicare, Social Security, so forth.

And if you are below the maximum amount that you can pay, well, your taxes are probably going to rise. And so the CBO said, and not a single reporter reported this, as far as I can tell. That if you do nothing else except just work harder, you are going to pay more in taxes.

Now, Jim, another thing that bothered me so much this morning when I read this report; there's still another tax system. It's called the alternative minimum tax, and I hope we don't get too much into the weeds here. But more and more Americans are paying the AMT. If you have children, if you have a lot of tax credits and deductions that you can take legally on your tax form, you may end up dropping off the income tax, and having to pay the AMT, which does not have an adjustment for inflation.

Well, more and more Americans are going to pay the AMT over the next 10 years, and the CBO said that. They said look, it's going to get more and more Americans...

ANGLE: Which would force your taxes up. And as I understand it, both candidates want to fix that, but no one has actually done it yet.

BEACH: Exactly right.

ANGLE: OK. Let me ask you about one of the things Senator Kerry was talking about there. He said two things. One: he said middle-class will be paying more. It's clear from what you said that no one will be paying more. He also said, "The burden is shifting to the middle class." And there are some numbers in the tables from the CBO that show the middle class paying more.

Now, here you see this is on the wealthy paying more. The top 1 percent is actually paying 32.3 percent, 30 -- with only 31.6 percent before the tax cut. Before the tax cut, the top 20 percent were paying about 78 percent. Now they're paying 82. So the burden has gone up on the wealthiest taxpayers. But it also shows that the burden -- the share of the burden is going up on middle-income taxpayers. What does that mean?

BEACH: Well, it goes up a little bit for several of the reasons we just mentioned. The CBO included corporation income taxes, right? Now, what they did is they said let's distribute the burden of that tax to the people who own stocks in corporations. Well...

ANGLE: Well, how do they know who owns stocks?

BEACH: Well, they don't really know who owns stocks. What they're doing is they're guessing that people like you and me, and other people who are making $70,000 -- you are probably making more that. But are earning more and more of their income from owning stocks, and I know that's true. More middle class people are. So, that's one of the reasons why the tax...

ANGLE: So they apportion out corporate tax breaks and that sort of far thing.

BEACH: Yes. Exactly right.

ANGLE: Let me ask a couple other things here. I mean obviously, the Democrats do have an argument in the sense that the wealthy...

BEACH: Yes.

ANGLE: ... it's a percentage tax cut. The wealthy get bigger in absolute dollar terms. They get bigger tax cuts.

BEACH: Nobody disagrees with that. From the very beginning in the 2000 campaign, President Bush said we're going to try to give a tax cut to everybody who pays taxes. And the wealthy people pay 65 percent of all the taxes in this tax system. So that's what they're going to do. And that's just -- that's not a surprise here.

ANGLE: No there's -- we just have less than a minute left. Let me ask you one thing. Senator Kerry wants to roll back the tax cuts for the wealthiest taxpayers. That would generate 60 to $80 billion a year, if I remember correctly. And I think he argues that you could use that money to relieve the burden on states and localities so taxes wouldn't go up, or it might go down there. Also, that it might be used in federal programs to help the middle class. Thirty seconds.

BEACH: Well, what we're -- we're studying this and we're finding that it actually slows the economy. It produces some unemployment. It produces less jobs than if you were to keep the taxes where they are, or actually make them permanent. And he doesn't actually get 60 to 80 billion a year. He gets around 40 to 50 billion a year. So not enough to pay for his health care. Not enough to help relieve state and local governments. I think it's a bad idea economically and from tax policy.

ANGLE: OK. Bill Beach from the Heritage Foundation (search), thanks for joining us. Always good to have you.

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