"FOX NEWS SUNDAY" HOST CHRIS WALLACE: Charles Schumer is one of the Democratic leaders in the Senate and vice chair of the Joint Economic Committee, and he joins us from our FOX News studio in New York.

Senator Schumer, let's start with the...

SEN. CHARLES SCHUMER, D-N.Y.: Good morning.

WALLACE: ... Democrats' $825 billion economic stimulus package and President Obama's calls for bipartisanship.

Have you heard anything from Republicans in these meetings over the last few days and weeks where you say, "All right, we'll take that out," or, "We'll put that in?"

SCHUMER: Oh, yeah. I mean, the president-elect and many of us are trying to work very closely with the Republicans, and I think it's going to make — I think we're going to have a very good package.

A third of the package is tax cuts. That's generally the way the Republicans prefer to jump-start the economy. We prefer — we think that tax cuts are probably not the most efficient way to do it, but in effort to compromise, there is a significant chunk of tax cuts in there.

I do worry. Now every business group is coming to lobby for their little tax cut or another little tax cut, and we have to be careful about that.

But overall, the air of bipartisanship is in the air, and that's been set by President-elect Obama. But even Senator Reid last week said we're going to allow Republicans to offer amendments on the floor as long as they're relevant.

And it's a different — it's a different era. It's a much more bipartisan era.

WALLACE: Well, you say...

SCHUMER: And President — the president deserves credit for that.

WALLACE: Well, you say that, Senator, but you heard Senator John McCain say that yes, the Republicans got to vote, but the Democrats basically wrote the bill, and so far that it's primarily a Democratic bill that he says he can't support.

Let me ask you specifically about one part of it. The nonpartisan Congressional Budget Office did a review of the $355 billion that's going to be the spending that's going to be primarily for the infrastructure, and they say that less than half of that $$355 billion would actually be spent in the next two years while the recession is at its worst.

SCHUMER: Right, but they...

WALLACE: How do you respond to that?

SCHUMER: ... do say — they do say that 75 percent of the whole package...

WALLACE: No, they don't say that.

SCHUMER: ... the whole 825 — yes, they do.

WALLACE: No, they don't.

SCHUMER: Of the whole package.

WALLACE: That's what — that's what — that's what Peter Orszag, the head of the budget office...

SCHUMER: Yes.

WALLACE: ... at the White House, says. The CBO only analyzed the $355 billion and said more than half of it won't be spent in the next two years.

SCHUMER: OK. I believe that the analysis that they've done and everyone else done — because much of the other package is for direct spending.

And let's just talk for a minute. There are three goals of this package, each very important. And I think Obama has wisely put these together. The first is to get the economy moving right away, to get money into the economy, because it's headed south. It is in deep recession.

And if we go over the line and head into a deflationary spiral downward, almost no one knows what to do. So last week we had a Democratic caucus meeting and two conservative Republican economists, Martin Feldstein and Mark Zandi, said the package isn't big enough. So you have to get money into the economy right away.

The second part of the package is creating jobs. The president has wisely promised to keep or create 3 to 4 million jobs, and that's very important at a time when we've been losing over the last two months half a million jobs a month.

But the third, and this is the most interesting part of the package, and it relates to your question, is to make sure we improve the efficiency of this economy so that, God willing, when we get out of the recession, we have something to show for it.

So completing our power grid and making it more energy efficient; having I.T., information technology, in health care — those are things that are not going to be spent immediately, but they're going to improve the efficiency of the economy in the long run.

And what we want to show, unlike the last stimulus package, after the package is over we have something to show for it — new roads, new bridges, I.T. So I think that it's a well balanced package...

WALLACE: But — but — but here's...

SCHUMER: ... in terms of where it goes.

WALLACE: Senator, if I — if I may ask a question here, let's assume that the...

SCHUMER: Please.

WALLACE: ... CBO is right when they say the 355 billion in spending, primarily for infrastructure — more than half of that won't come in the next two years.

Then you've also got the budget chief for Barack Obama, Peter Orszag, who's saying 75 percent of the total package will be spent in the next 18 months.

SCHUMER: Right.

WALLACE: That would seem to indicate that you need — that the tax cuts are the part that's going to come out in the next 18 months and it's the spending that won't come out. So maybe you need more tax cuts and less spending.

SCHUMER: No. In fact, what the economists say, Chris, is tax cuts get into the economy more slowly than spending. And in fact, the major criticism of the last stimulus package was it was only tax cuts and it didn't have much of an effect.

So for instance, money that gets the economy pumped up right away to make sure the states don't either raise taxes or cut back; money that goes into immediate programs, some of the infrastructure and helping increasing unemployment benefits and things like that, will get — that's the number one way to get the economy going right now, and that's not tax cuts.

The tax cuts probably kick in at the middle level. In other words, the first thing that would kick in would be the spending. The second would be the tax cuts. And the third would be some of the infrastructure that's long range.

WALLACE: Well, then, Senator, you're not...

SCHUMER: But I would say this, Chris. Just one point here. The long-range infrastructure, the energy stuff, some of which is tax cuts, some of which is spending, the I.T., some of which is tax cuts — I proposed making it easier for middle-class people to keep their kids and put their kids in college.

That's a little long term, but you don't want to see a kid drop out of college because even though they deserve to be in college they can't afford it. Those are getting broad bipartisan support.

WALLACE: Well, Senator, I mean, when we just heard from John McCain — what you seem to be saying is, "Sure, we're going to vote. We'll let you offer your amendments. We'll let you vote and mark up the bill, and we're going to beat you, and we're going to put out basically the package that we have right now."

SCHUMER: I think you're going to find a large number of Republicans voting for this package. There has been a lot of input. I regret that Senator McCain has said he's not going to vote for it.

But you know, bottom line is a package that is a third tax cuts and about a third infrastructure and a third pumping money into the economy — almost every economist that I have talked to says it's the right balance. And most — as I said, some are conservative economists — say it's too little on the spending side.

WALLACE: All right. I want to...

SCHUMER: Martin Feldstein said...

WALLACE: Senator, Senator...

SCHUMER: ... to us the other day...

WALLACE: ... I want to...

SCHUMER: ... he said spend quickly. That's your number one goal.

WALLACE: Senator, let's move on, if we can, to the financial...

SCHUMER: Sure.

WALLACE: ... bailout, the so-called TARP bailout. There's increasing talk that the $700 billion financial rescue package isn't enough, that the banks are in such trouble that you're going to need even more money. Do you support that idea?

SCHUMER: Well, we'd have to see how the money was spent. Obviously, there's a lot of disquietude about the first TARP, the first 350 billion, and now the president has promised to put much more controls on how the money is spent, to have much greater transparency and, very importantly, to put a significant amount in putting a floor to the housing market and dealing with the mortgage mess.

So if we need more money, it's something we'll all give a careful look, but not without controls and conditions. That was the regret of the first package, the first part of the package, that those were not there.

WALLACE: Let's turn, if we can, to foreign policy. We were talking with John McCain about this question about investigating what went on the last eight years.

Speaker Pelosi told me last week that Congress doesn't have the right to ignore what went on the last eight years, if there was law breaking. As we said, the attorney general-designate is leaving that possibility open.

You heard John McCain just say that's the worst thing we could do, look back towards the last eight years and try to second-guess what a bunch of people in the intelligence field did. What's your feeling on this issue?

SCHUMER: My feeling is generally that of President Obama, that we should be looking forward, not backward. How do we correct the mistakes of the past and how do we keep ourselves secure and preserve vital liberty?

If there are egregious cases, I don't think you can say blanket no looking back, no prosecutions. If there are egregious cases, yes, you have to look at them.

But overall, the tone of Barack Obama and of Attorney General Holder — I've spoken to him privately on this, as well as what he said at the hearing — is not to spend too much of our time, a lot of our time, looking backward and pointing fingers.

It's, rather, going forward and making the policy better in the future.

WALLACE: Senator, what happened to Caroline Kennedy's bid for the New York Senate seat?

SCHUMER: Well, the bottom line is — first, I would say we have a very strong candidate in Kirsten Gillibrand. Caroline Kennedy would have been a very good candidate. I thought so. She's a smart, hard- working person. She'd be an excellent senator. She would have been...

WALLACE: What happened?

SCHUMER: ... an excellent partner. What happened was that she decided, as she said, at the last — at the end of the day, not to run because of personal and family reasons.

And I think we ought to respect her privacy and leave it at that.

WALLACE: You know that there's a big difference — and we're hearing different things from the Democratic governor of New York, Governor Paterson, and from Caroline Kennedy's camp.

Did she drop out or did David Paterson decide for a variety of reasons, including taxes and nannies, that she wasn't up to the job?

SCHUMER: No, I believe she dropped out. But I think the specifics of the conversation you ought to leave — you ought to talk to Governor Paterson and Caroline Kennedy.

I'm not going to get into the details of their conversations between one another.

WALLACE: Are you satisfied with the way that Governor Paterson handled this process?

SCHUMER: Well, I think you can take the governor at his word. I know, because I talked to him regularly through this process, he was really — it was a difficult decision, a weighty decision.

And just about all of our discussions were the merits — who would make the best candidate, what are the pros and cons of each.

I think the one — and that's a difficult decision and, you know, you don't always say, "Well, on day one here's what I think," and it's going to be the same on day 20 or day 40.

The one thing he said he did wrong is he called it the wrestling match, wrestling in his own mind with what — who was the best candidate. He shouldn't have talked about that wrestling match publicly, and I think we can leave it at that. But that's hardly the most venal of sins.

WALLACE: The new senator, Kirsten Gillibrand, gets a 100 percent rating from the National Rifle Association. She was the only Democrat in the New York delegation, congressional delegation, to vote against the $700 billion bailout. Is she really the best choice to be the senator from New York?

SCHUMER: Well, I believe she's a great choice. There were many good candidates, and in my conversations with the governor I never said there ought to be one. We went over the pros and cons. And we had a very good and deep bench.

I'm very happy with the choice of Kirsten Gillibrand. First, she's a hard worker. She's a good legislator. She's sort of a go-to gal. In other words, you have a problem, you go to Kirsten, and you know there's going to be a lot of hard work, intelligence and ultimately success.

The district she represents is quite different than much of the state. It's very rural. In some ways, it's more like Montana than New York City. It has no large cities. And yet even there, she has a very Democratic record.

Her ADA rating, I think, was in the high 90s, strongly pro- choice, strong on gay rights. There are some issues where she would disagree with the majority of New Yorkers. Certainly with me, gun control is one of those. As you know, I was the sponsor of the Brady law and the assault weapons ban.

But let me say this. As Kirsten begins to represent the whole state, and she's already downstate listening, you learn that the — you learn the damage that gun violence, for instance, causes in cities and that many of those guns come from out of state. So nothing the city or state can do on its own can stop that.

WALLACE: Senator Schumer...

SCHUMER: So let me just say this. She...

WALLACE: Well, no, Senator Schumer, let me ask you a question, because we've got about 15 seconds left.

SCHUMER: Yeah.

WALLACE: Just real quickly, can you say at this point that you would support her when she runs for election in 2010?

SCHUMER: I think she's going to be a great, great candidate, and we're going to work very hard in the Senate. I don't make endorsements in primaries two years in advance, but I have every expectation of supporting her, and I think she's going to be very well received throughout New York State.

WALLACE: Senator Schumer, we want to thank you, as always. Please come back, sir.

SCHUMER: Thank you. Nice to talk to you, Chris.