Are we really heading over a fiscal cliff?

Pennsylvania Senator Pat Toomey weighs in

This is a rush transcript from "Your World," October 10, 2012. This copy may not be in its final form and may be updated.

NEIL CAVUTO, HOST OF "YOUR WORLD": This just in: Chuck Schumer just wants to get to work, not in front of a microphone, which is kind of novel, but behind closed doors, which at least is encouraging.

The New York Democratic senator says it is very crucial that Washington avoid a fiscal cliff by getting back to work. And if it takes a lame-duck Congress to hammer out a way out of all of these expiring tax rates and budget cuts, so be it. Just hop on it.

Oddly enough, Republican Pennsylvania Senator Pat Toomey agrees, but not on just any deal, the right deal.

What, senator, is the right deal for you?

SEN. PAT TOOMEY, R-PA.: Well, it's certainly not the direction that Senator Schumer's talking about.

Neil, Chuck Schumer has carved out a place for himself well outside the mainstream, arguing that there's no scenario in which we can lower marginal rates. Now, that is inconsistent with what every bipartisan group has looked at in terms of addressing our budget problem.

On the tax side, the rational thing to do is to have a more pro-growth sensible tax policy with lower marginal rates and to offset the lost revenue by squeezing the value of deductions and write-offs and loopholes in any number of ways.

That's the way to generate revenue. But to keep marginal rates -- in fact, as he has advocated, to raise them above where they are now -- can only be counterproductive for economic growth.

CAVUTO: Now, he's talking about letting the Bush rates expire for the very richest. You argue that this is not the time to do that.

Do you think -- I know you want to see Mitt Romney elected, but if the president were reelected, that he would say absolutely not to that, and that a lame-duck session would simply be unable to push that, short of maybe getting a six-month extension for cooler heads on both sides to prevail and address all this?

TOOMEY: It's just impossible to tell, Neil.

I don't know what President Obama is willing to do. He wasn't willing to address reforming entitlements, wasn't willing to do tax reform. He had four years. We would have embraced an opportunity to do fundamental tax reform.

The president never provided any inkling that he had any interest in that. So, I don't know. After an election -- I don't think he is going to win, but if he were to win, would he be willing to do that? I suppose it's possible, but I sure couldn't predict that.

CAVUTO: You know, Senator, we will be live in Washington, looking at this other, you know, potential train wreck that develops before the end of the year if you guys do not hammer out something.

Is it your feeling that you will, that a lame-duck session might take a three, six-month reprieve to hammer something out, or that this could be the sort of financial Armageddon that some market types fear?

TOOMEY: Well, first of all, I think we should be very -- we should kind of unpack this fiscal cliff. There are two -- well, there's more than two, but two big discrete components that really we should think about separately, in my view.

One is the massive tax increases which will be devastating for our economy. On the other hand, it's relatively modest spending cuts which are appropriate in magnitude, but I think poorly designed in that they fall disproportionately on our defense budget.

So, I do think it's important that we distinguish between those things.

(CROSSTALK)

CAVUTO: But they are both happening at the same time. They are both happening at the same time.

TOOMEY: That's absolutely...

CAVUTO: You would advocate what?

TOOMEY: That's absolutely true. Well, what I'm advocating is we re-engineer the content of the spending cuts, because too much falls on defense. But the magnitude of the spending cuts is necessary and appropriate. Actually, we need to cut more than that.

And I think the economy would do just fine with $100 billion in spending cuts because the government is much more than $100 billion too big. What we need to do is avoid this huge $500 billion tax increase, which is the scale roughly of the tax hikes if nothing is done. So, I'm certainly hopeful that, in any case, we will avoid that massive tax increase.

CAVUTO: All right, senator, I look forward to seeing you in person tomorrow in Kentucky.

In the meantime, sir, thank you very much.

TOOMEY: Thanks for having me, Neil.

CAVUTO: Senator Pat Toomey.

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