Updated

This is a partial transcript from "Your World with Neil Cavuto," November 7, 2006, that was edited for clarity.

NEIL CAVUTO, HOST: To the U.S. Senate now, where the outcome, I guess, is anyone's guess.

If Democrats don't take control, many could blame this next guy — well, John Kerry's botched joke about the troops helping to energize Republicans.

But, according to reports, it wasn't Senate Minority Leader Harry Reid who got Kerry to apologize. And it wasn't the No. 2 Democrat in the Senate either, Dick Durbin. If some of these reports are right, it was my next guest, New York Senator Chuck Schumer, who could become the new king-maker of the Senate, if things go his way — a very influential fellow.

Senator Schumer, good to have you.

SEN. CHARLES SCHUMER, D-N.Y.: Nice to talk to you, Neil.

CAVUTO: On this Kerry thing, was that true, that you were the guy who got him to say, "I'm sorry"?

SCHUMER: No. No, I mean, I talked to John Kerry. So did Senator Reid. But he came to the conclusion himself — and I thought it was rather selfless and generous — that, even though his desire was to sort of keep fighting back here, that it would divert the issue from what had been helping us and continues to help us in this election, which is popular discontent with the president's policies, whether they be the war in Iraq, what's happening overseas in general in North Korea and Afghanistan or here at home, where the average person's wages aren't going up, but tuition costs, energy costs, health care costs are.

CAVUTO: But do you believe, Senator, that his comment sort of upset your momentum that you were gaining for Senate Democrats?

SCHUMER: No, I do not. I do not.

You know, frankly, the president and his advisers are always looking for diversionary issues. When times are good, they tend to work. They're sort of fun. They're amusing. You guys in the media love it.

But, when people want change, when they're not happy with what's happening in Iraq, when they're not happy with the middle class basically being able to pay its — all its bills, then, these diversionary issues don't work, because the voters are lot smarter than many of the pundits.

And they know, the day after the election, criticism of this candidate or that figure isn't going to start making their tuition bills lower.

CAVUTO: All right.

Senator Schumer, you have criticized this economy and how — how poorly it's doing. Yet, the aggregate numbers, as you know, sir, are identical, if not stronger, than they were 10 years ago, when Bill Clinton was president.

Why weren't you railing then about this economy?

SCHUMER: Well, the problem is, I'm not criticizing it as how poorly it's doing. The aggregate numbers are good. And that's terrific. And I'm glad corporate profits are up.

But what's happened in this new world is that wealth is tending to agglomerate at the top. The amount of the GNP that goes to either corporations or people in the top 1 percent or 5 percent is much higher than it was 10 years ago.

Now, that is really not the Bush administration's fault. That's just how the economy works. In an ideas economy, you need fewer people to create wealth. And the wealth agglomerates to the top just to...

(CROSSTALK)

CAVUTO: But let me understand…

SCHUMER: So, let me just finish my point.

CAVUTO: I — I — here's where I'm a little confused, Senator. The top 1 percent now is paying a greater share of the taxes than they did 10 years; the top 5 percent, 20 percent more of the taxes than they did five years ago.

SCHUMER: That's not the point, Neil.

CAVUTO: So...

(CROSSTALK)

SCHUMER: The point is that the average middle-class...

(CROSSTALK)

CAVUTO: The point is, are you misrepresenting...

SCHUMER: I didn't bring up taxes.

CAVUTO: ... the economy?

SCHUMER: Are you going to let me finish my point, or are you going to just interrupt?

CAVUTO: Make your point...

SCHUMER: Thank you.

CAVUTO: ... because I don't think you're answering mine.

SCHUMER: Thank you.

Yes, well, you keep changing the subject.

The bottom line is that the average amount of wealth — wealth, not taxes, wealth — income, that the middle-class person has today, compared to the costs that they have, particularly in terms of health care, tuition, buying a home, are — are less than they were before.

And that's — you asked why people are not happy. It's not me. Ask American people, are they happy with the direction of the economy, and the majority say no.

CAVUTO: So, when you look at this economy and you see the market hitting all-time highs and you see corporate profits up, that's a vacuum? It's happening in a vacuum?

SCHUMER: No. That's a good thing.

But you didn't — that's not the question I'm addressing here. You asked about the election. And the average voter needs some help.

Let me give you an example: I passed a law that helped middle-class and upper-middle-class people pay their tuition bill. We allowed them to deduct $4,000 from their taxes for tuition, for people whose income was up to $160,000.

This Republican Congress took it out, ended it — it's now no longer law — and put it into more tax breaks for oil companies.

Now, I'm glad ExxonMobil is making profits. But, if you ask the average American — or, I think, the average economist — where it's better to put the $29 billion that that tuition tax break went to, either helping people go to college, because education's our future, or helping ExxonMobil and the other oil companies make even more money, most would choose the former. So, it's not a question...

CAVUTO: Well, let me ask you this, then. All right. All right. You made the tax class warfare thing. Let me ask you about this notion that the president's tax cuts...

SCHUMER: Do you want — do you want to mischaracterize everything I say, or do you want to listen to my argument?

CAVUTO: No, I want...

SCHUMER: That is not class warfare, and you know it.

CAVUTO: Senator, what I want you to do is to answer a simple question. The president's tax cuts...

SCHUMER: Yes.

CAVUTO: ... right now, they expire in 2010.

SCHUMER: Yes.

CAVUTO: Are you for extending them, yes or no?

SCHUMER: Some of them, yes. And some of them, I would rather put into other things, like tuition deductibility.

CAVUTO: What are the ones you would rather put into other things?

SCHUMER: I would certainly rather put into other things the very high-high-income ones and help the middle class.

As I said, our economy is changing. And wealth agglomerates at the top by the nature — if you would let me finish what I was saying before, in the ideas economy.

Let me give you an example: When Henry Ford thought up his great idea, creating a car by mass production, he needed a million people to carry it out, people to make the cars, people to buy the cars, people to sell the cars, people to transport the cars.

When Bill Gates thought of his great idea, which was basically mass producing a computer platform — Windows — also a very important good idea — and he should become a wealthy man. This is not a class-warfare issue. But he only needed 10,000 people to carry it out, because it's an intangible, because it's a lot easier to spread.

And, in an ideas economy, most economists will tell you, Neil, that wealth agglomerates at the top. That means that tax breaks, if you have tax breaks...

CAVUTO: All right. Well, fair enough.

Then, let me ask you this. The 35 percent tax rate now...

SCHUMER: No, let me just finish my point.

CAVUTO: No, Senator, I can't...

SCHUMER: Let me just finish my point.

CAVUTO: ... let you filibuster.

(CROSSTALK)

SCHUMER: I'm not filibustering.

CAVUTO: We got a 35 percent tax rate now. Do you want it to return to 39-percent-plus, yes or no?

SCHUMER: No.

CAVUTO: All right. So, what do you want it to go to?

SCHUMER: Well, I told you, I would like to focus, when we have more income, which gradually grows with the economy, particularly in these numbers, on middle-class tax breaks.

I would like to have tuition deductibility not just restored to $4,000, but go up to $12,000 and $15,000.

And here's what you're going to have to deal with, Neil. You're going to have to deal with the fact that the Democratic Party understands the need for tax breaks, but we want to focus the tax breaks on the middle- income people, who need it more than the — than the...

CAVUTO: OK, so remove the top ones, right? Remove the top ones, right? OK. That's fine. I just want to be clear.

The top one is what you want to remove, maybe return it or get it closer to what it was prior to the president's tax cuts?

SCHUMER: You know, again, the bottom line is, I would try to direct a greater percentage of the tax cuts at people making $50,000, $100,000 and $150,000, and less of it at people making over $1 million.

CAVUTO: All right.

Senator, thank you very much.

SCHUMER: Thank you, Neil.

CAVUTO: Senator Chuck Schumer.

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