This is a partial transcript from "Your World with Neil Cavuto," October 30, 2006, that was edited for clarity.

NEIL CAVUTO, HOST: This is a FOX News Alert: the Dow generally holding its own, defying a lot of worrisome news again; an administration talking up an economy again; but much more disturbing numbers coming out of Iraq again.

Welcome, everybody. I'm Neil Cavuto and this is "Your World."

And, today, a look at your vice president, arguably the most powerful one in American history, on this most unusual of crossroads in American history: a booming economy, amidst a very troublesome war.

Today, with me, Dick Cheney addresses both.

(BEGIN VIDEOTAPE)

CAVUTO: Mr. Vice President, welcome. Always good to have you.

RICHARD B. CHENEY, VICE PRESIDENT OF THE UNITED STATES: Good to see you again, Neil.

CAVUTO: We have now word of the 100th U.S. serviceman who has died in combat this month. And there's a perception that that is what is taking Americans' minds off what is inarguably a pretty strong economy.

Do you agree with that?

CHENEY: Well, there's no question but what Iraq is very much on everybody's minds. It ought to be. It's a very important problem, of course. And we have got a lot young Americans committed over there, doing some very, very difficult things.

And, unfortunately, obviously, we have lost a number, as well, too. It's one of the toughest things any president ever has to do, is to make a decision. But it's absolutely essential that — that we get it right in Iraq.

And I think that, in fact, we're on the right course. I think it's the right thing for us to be doing. Now, it's not the only issue, I'm sure, in this fall's campaign. There are a lot of other issues, too. But I would expect it's one of the — one of the important ones.

CAVUTO: Do you suspect that these insurgent attacks are — are timed to influence our midterm elections?

CHENEY: That's my belief. I think they are, very, very cognizant of our schedule, if you will.

They also — you have got to remember what the — the strategy is of — of the terrorists. I mean, they specifically can't beat us in a stand-up fight. They never have. But, whether it's Al Qaeda or the other elements that are active in Iraq, they are betting on the proposition they can break the will of the American people.

They think we won't have the stomach for the fight long-term. Usama bin Laden says as much. He talks about this. And, in fact, their belief is that the same thing will happen here that happened in Beirut in 1983 or Somalia in 1993, when, after we lost a number of people, then, we packed it in and came home.

The thing that's different, of course, is 9/11. And there may have been a time when we would be safe behind our oceans in the past, but that pretty well went by the boards on 9/11. And, since then, Neil, we clearly have to be engaged. We have got to be active. We have got to prosecute the global War on Terror.

We have been able to defend the country successfully for five years now, have not had other attacks against the U.S., although they have tried. But that's primarily because we have gone on offense. We have put in place some very robust measures here at home to protect the country, as well as taking the fight to the enemy overseas.

CAVUTO: Do you think, though, that the insurgents are better at these polls than even we are, that they are reading them and seeing frustration growing with the war, and, regardless of the good economy, saying: Let's keep up the attacks; let's keep up the pressure?

CHENEY: It's my belief that they're very sensitive of the fact that we have got an election scheduled.

And, you know, they can get on the Web sites like anybody else. There isn't anything that's on the Internet that's not accessible to them. They're on it all the time. They're very sophisticated users of it. And I do believe that that's a part of it.

I think we have also seen, of course, a higher level of violence because of Ramadan. Traditionally, there's a spike about this time of year, in terms of level of activity.

So — but, again, I come back to the proposition, they know that the way they win is if they can, in fact, force America to withdraw, on the basis that we aren't going to stay and finish the job, their basic proposition that they can break the will of the American people. That's what they believe. And that's what they're trying to do.

CAVUTO: Your wife, Mr. Vice President, created a little bit of a stir in an appearance on a rival news network last week, taking exception to the way that network portrayed the economy, the government, that things are going to hell in a hand-basket. I'm sort of paraphrasing here. Actually, she was much more — much more to the point that I'm being.

What did you think of that?

CHENEY: I thought it was great. We refer to it around the house as the "slap-down."

And she was very tough, but she was very accurate and very aggressive. And, of course, she was in the business for a while. There was a time, on that network, when she used to host the show they had on for a long time called "Crossfire," on Sundays for a couple of years. So, she spoke her mind, and I thought it was perfectly appropriate.

CAVUTO: Did she go into that kind of ticked off, because she saw this weeklong series on — one day a time — everything that's bad with America, and she just said: You know what, I'm going to let her rip?

CHENEY: I'm sure she had seen part of it. But, no, I think she just responded to the moment. And — but she's pretty tough and pretty aggressive. And — and that's exactly the way it ought to be. She presented, I though, a very strong case.

CAVUTO: Did you talk to her prior to her going on?

CHENEY: No.

CAVUTO: Did you talk to her afterwards?

CHENEY: I did.

CAVUTO: What did you tell her?

CHENEY: I told her I thought it was a sterling performance.

CAVUTO: All right. So, the potential CNN analyst job for her is now out the window, I guess.

(LAUGHTER)

CAVUTO: All right.

Let's talk a little bit about the economy, an overview, sir. We got indications today consumer spending was up a tenth-of-a-percent, still good, still the smallest increase in almost a year, GDP in the latest quarter up still a respectable 1.6 percent, but it's been going down quarter by quarter. And there are some who are saying that that is the angst that's being reflected in polls and surveys about the economy.

What do you make of that?

CHENEY: I think the economy is in great shape, Neil.

I look at where we have come, when you think that we have had to weather a recession, followed by 9/11 and the aftermath of 9/11, followed by Katrina, one of the worst natural disasters in history. And the economy has come through all of that in — in great shape. We have got all-time record employment — unemployment down about 4.6 percent. Real wages and salaries are up. Real income is up across the board. Corporate profits are good. The stock market is at all-time record highs and keeps hitting new highs day after day after day. I mean, I — I'm hard put to think of how the economy could be much better.

You can find adjustments going on various places in it. Housing is a little soft right now, but I think the economy is in great shape. And I think a lot of that is due to the policies the president and the Republican Congress put in place, specifically the tax cuts we put in. And I think it's very important, going forward, that we continue those policies, if we want a strong, healthy economy.

CAVUTO: The tax cuts — that's a very big issue if Democrats take control of Congress. We haven't got a clear answer from a prominent Democrat as to whether they would be shelved, but, at the very least, they're not going to be renewed. That seems to be consensus.

What happens then, do you think?

CHENEY: Well, remember, the way the law is written, the cuts that we put in — we cut the rate on capital gains and dividends to 15 percent. We reduced the marriage penalty, increased the child credit, phased out the death tax and so forth.

What happens, because of the way the Senate rules function is, those will automatically go back in. The higher rates will automatically kick back in after a period of time, around 2010 in most cases.

So, if Congress does nothing, if they just sit where they are, rates are going up. Taxes are going up. In other words, the Democrats, were they to take charge, if Charlie Rangel were chairman of the Ways and Means Committee, Charlie has said there's not a single one of the Bush tax cuts he thinks should be extended. And he could achieve that objective simply by not acting.

Unless there's an affirmative action by Congress, legislation passed to keep those rates low, those rates are going back up, and you would have a massive tax increase. And I think that would do a lot of damage to the economy, to say nothing of the fact that it would probably raise the taxes on the average American family by a couple thousand dollars a year.

CAVUTO: You know, you mentioned Charlie Rangel, sir. I had him on my show the other day, and he says that — that what's happening on Wall Street and these records for the Dow is — is for fat cats. It's the Wall Street rich guys who are enjoying this. This hasn't trickled down.

What do you make of that?

CHENEY: I just — I think Charlie doesn't — doesn't understand how the economy works and who owns those — those stocks and those securities that are represented on Wall Street.

The fact of the matter is, well over half of all Americans have a stake in that. A lot of people have got it in their pension plans, or if they just own a mutual fund. The health of the economy is reflected in part in the health of the stock market. And everybody benefits when the — the market is doing well, as it is right now.

CAVUTO: So, why aren't they whooping it up? Why aren't they partying? Why aren't they saying, hey, another record; let's go for it?

(LAUGHTER)

CHENEY: It's — I don't know — maybe they have gotten used to it.

But we — I think the president deserves a lot of credit. I think Congress deserves a lot of credit for what we have been able to accomplish for the economy. And we will talk about it a lot during the campaign.

(END VIDEOTAPE)

CAVUTO: And he will talk a lot more — next, the vice president on interrogation techniques, including that very controversial practice called water-boarding.

(COMMERCIAL BREAK)

CAVUTO: Say this about Vice President Dick Cheney: He speaks his mind.

But, when he seemed to hint last week that he is perfectly OK with some extreme interrogation methods of detainees, he sent tongues wagging and pundits screaming.

Today, I offered him a chance to explain himself.

(BEGIN VIDEOTAPE)

CAVUTO: I would be remiss if I didn't mention a non-economic issue with you, sir. And it concerns torture and some — some argue that your words were taken out of context, when — of whether you approved of water-boarding, whether you approved of other various torture techniques.

Could I get unequivocally from you your view on water-boarding, whether that's appropriate torture?

CHENEY: My view is, I never talk about specific methods. That's all classified. We don't discuss it. We don't talk about it.

We don't torture, though. It's very important to make that point. We are parties to international treaties. And any activity the U.S. government is involved in, in this area is consistent with those treaties and those obligations, and — and with the law of the land.

CAVUTO: So, there would be never a moment or a time when you think it is appropriate to go above and beyond traditional ways we treat detainees, in order to get information?

CHENEY: I am a strong supporter of having the CIA have authorization to run a special program, which we have done, and which the House has now passed legislation to continue, as has the Senate, that gives them the authority to operate a program that allows us to interrogate people like Khalid Sheikh Mohammed, for example, the man who put together the attack on 9/11.

I think we need to be able to do that. I think we can do it appropriately. I think we can do it without resorting to torture. But, at the same time, it's one of the most valuable sources of information and intelligence we have on the enemy, finding out who they are, where they train, what their plans are. It's one of the reasons we have been able to prevent another attack on the U.S. since 9/11, for five years now.

So, I'm absolutely a believer in that program. I think the Congress did the right thing in passing it. The president signed it into law. It was part of the Military Commissions legislation that passed just before they adjourned.

One of the intriguing things is, Democrats voted overwhelmingly against it. Thirty-two out of 44 Democrats in the Senate voted against it. And, in the House, I think it was 162 House Democrats voted no on that legislation, when it came up. If they had had their way, we wouldn't have the military commissions to try these terrorists, and we wouldn't have the authorization we need to be able to interrogate them effectively.

CAVUTO: Let me ask you, sir, this weekend, "Death of a President," a documentary that purports to show the assassination of President Bush, debuted to lousy numbers. But what's interesting in the documentary, Mr. Vice President, is how you're portrayed, that once the president...

CHENEY: I haven't seen it.

(LAUGHTER)

CAVUTO: OK. But once the...

CHENEY: Should I — should I go see it, Neil?

CAVUTO: No.

CHENEY: OK.

CAVUTO: We will just leave it at that.

What's interesting is how you're portrayed, though. The president is killed, and — and you are on a vindictive witch-hunt that takes you across the Middle East, namely, to Syria — not too good, not too — I don't know the best way to put it — complimentary. What do you think of that?

CHENEY: I — I haven't seen it. I'm reluctant to even comment on it.

CAVUTO: But does your image in the press and the fact that, you know, the way you're parodied, and the way you're looked at in the media in general, does it ever bug you? Or does Lynne — we're in your wife's office now — ever say: I don't like that at all; they're not being fair to you?

CHENEY: No, I think the family has adjusted over the years. It goes with the turf. I sometimes listen to Don Imus in the morning...

(LAUGHTER)

CHENEY: ... on the grounds that, whatever is going to happen to me during the day, it can't be as bad as what's been said about me first thing in the morning while I'm shaving.

It's — you — you need to have a thick skin in this business. I — I say what I think, and — and do everything I can to support the president and do the right thing.

I am pleased to serve. It's been, certainly, the highlight of my career, to be vice president. But the only way to be loved, and — and not have some people unhappy, is not to do anything. Now, we have been involved in some very tough decisions, and had — had to do some very tough things during our six years now here in office.

And, with that, goes a certain amount of controversy and criticism. And that's fine. I don't have a problem with that.

CAVUTO: When conservative Republicans, Mr. Vice President, ask "Who do you admire most?" your name always comes out on top. And, despite the controversy of the war and everything else, would you ever feel an obligation to respond to their call to run?

CHENEY: I have made it very, very clear. I have said it over and over and over again: I am not a candidate. I won't be a candidate. My tenure is up when this term ends. I'm here to serve George Bush as vice president. I'm not going to run for president.

I think I said the other day, if nominated, I will not run. If elected, I will not serve. I can't be any more definitive than that.

CAVUTO: What if there was just this push, this clarion push among Republicans: We need someone tough on terror, and the present cast of characters isn't doing it; Mr. Vice President, please?

CHENEY: I think we have got a lot of great candidates out there, a lot of people who are eager to run. And — and I want to encourage them all to get into the race, and I look forward to supporting the nominee of the Republican Party next...

(CROSSTALK)

CAVUTO: Finally, sir, on the market — you're well-schooled in that area, as well — if I were looking — and many Americans are looking at how well the stock market has been performing, but you know, I know it can vary day to day — it can have many multi-year swings — and I wanted to buy an index, buy something that parroted the Dow or the S&P, and hang on to it, what would you tell me?

CHENEY: Well, I would say, invest.

I think the evidence is overwhelming that, over the long term, the American stock market is a good investment, earns good returns, dependable returns. And — and I wouldn't say that's the only investment you should have, obviously. I think anybody would urge you to — to diversify and have other investments, as well, too. Don't put it all in one — in one basket, so to speak.

But I don't think there's any question but investing in the American economy is a good idea for most people.

CAVUTO: So, given these recent slow — slowing economic stats, you're not worried about a slowdown or a recession that some have envisioned in the second half of next year?

CHENEY: I'm — I'm not in the business of making forecasts.

But, from everything I can see, and the people I talk with, we're optimistic about the economy. And I think we will finish strong in the fourth quarter this year, and I think '07 should be a good year, too.

CAVUTO: All right. And Democrats, if they take over — and I know you don't envision that — they have talked about a windfall profit tax for the oil companies. How do you feel about that?

CHENEY: Well, I — I think the operations, obviously, I support, the things I believe in, in terms of tax policy, keeping taxes as low as possible, I think the evidence is overwhelming that the kind of policies we have put in place have, in fact, stimulated growth, stimulated more jobs, stimulated the economy and corporate profits, made it possible for people to expand their businesses. And that's all to the good.

It's also, at the same time, that higher level of economic activity generated a lot more revenue for the federal government. We have, in fact, met our objective, in terms or reducing the deficit in half three years early.

Now, if you want to start raising taxes, certainly, that's a prerogative of governments, if they have got the votes for it and if the president is willing to sign it. And — but, whatever it is, when you start loading a tax burden back on the economy, you're going to reduce the overall effectiveness and efficiency of the economy, and reduce the — the opportunities for growth.

CAVUTO: Final question: Can you see a third-party candidate emerging and winning the White House?

CHENEY: I don't think so.

CAVUTO: Not at all?

CHENEY: I think we have got a good, strong two-party system, and we may have a third-party candidate from time to time. We have had a fair number of them during my lifetime.

They add a certain dynamism to the process. But we haven't — I wouldn't make the forecast or the prediction that one will — will ever emerge. It could happen at some point. What we have seen a few times historically is, you know, the Whigs went out of business, and the Republicans emerged, and something like that could, I suppose, happen at some point. But, right now, I expect — we have got a good, strong two-party system, and that's as it should be.

CAVUTO: Mr. Vice President, thank you very much.

CHENEY: Thank you, Neil.

(END VIDEOTAPE)

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