This is a rush transcript from "Your World With Neil Cavuto," October 23, 2009. This copy may not be in its final form and may be updated.

NEIL CAVUTO, HOST: I do want to update you on some news that was broken earlier on in this broadcast, if you just tuned in, from J. Russell George. He is the treasury inspector general for tax administration.

Just to get the gist of what the general does is, he — he is the blueprint guy for spending initiatives, in other words: Here's what you've got to do, guys. Here's what you don't want to do. Here's how you're going to spend this money. Here's how you should police how it's being spent, and here's how you should make sure, in the case of these housing credits — you remember the housing credit program that we had, $8,000 and all of that — that they don't go to 4-year-olds, they don't go to illegals, they don't go to the wrong people.

As you know, a lot of them, thousands of these checks went out to kids, some as young as 4 years old. And a lot of them went out to thousands, about 3,000, illegal aliens.

And now the news that really stung me the most is that among those taking advantage of this who shouldn't have and indeed illegally did, 53 IRS agents. That is a huge no-no and a huge taboo broken on this air by J. Russell George.

Again, we are still looking into this.

We do want to get reaction from Doug Hoffman. He's the New York congressional candidate. He's sort of a conservative maverick in the race who is bucking the establishment Republican Party choice. Mr. Hoffman, very good to have you.

DOUG HOFFMAN, NEW YORK CONGRESSIONAL CANDIDATE: Very good to be here, Neil. Thank you.

CAVUTO: First, your — I know that I am sort of hitting you blind side on this. What do you make of this? I guess it underscores some of the issues you campaigned about, the danger in just giving out a lot of money.

HOFFMAN: Well, that is a part of my campaign, is, I think the federal government and the states are spending too much money, and we are very worried about that.

And it is going to the wrong places, too, which is obvious by what you just talked about.

CAVUTO: Now, this comes at a time and your race comes at a time where it is almost dividing Republicans down the line. Sarah Palin announced her support for you. Newt Gingrich has already announced his support for your Republican challenger. And he has argued that any vote for you essentially means the Democrat in this race sort of waltzes in.

And therein lies the divide. What do you say to that?

HOFFMAN: Well, I — I disagree. I think this is a battle for the heart and soul of the Republican Party and for the values and ideals that we — we say we stand for.

And I also say that we are going to win this race. We're not — we're not going to let the Democrat get in. Basically, it comes down to two liberals in the race. And I'm the common-sense conservative Reagan Republican in the race.

CAVUTO: Now, Sarah Palin had said, essentially, that: I'm more a conservative at heart than I am a Republican. I owe loyalty to those principles, Ronald Reagan's principles, than I do to a party.

You share that view, I know. But are you fearing what established Republicans fear, that this is sort of dividing the cause and hurting Republicans make inroads across the country?

HOFFMAN: Well, I think, if the Republican Party ever wants to get back into the majority and they want to get strong again, they have to stick to their ideals.

And I believe it is principle over party. And that is why I am in this race, because if I was not in this race, the voters would not have a choice, other than two liberals. And that is very evident in the record of the Republican candidate, when you look at the fact that the New York State Conservative Party ranked her 15 out of a total score of 100 points for her votes in the Albany legislature in 2008.

CAVUTO: All right, you are talking about Dede Scozzafava, the Republican candidate in the race.


CAVUTO: By the way, we called Ms. Scozzafava's office. We also called the Democrat in the race, Bill Owens, and as yet to hear back from either of them. But that invite always goes out. What I want to ask you, Mr. Hoffman, is whether this mushrooms into something? Let's say — you're polling actually very well. You are almost even with Ms. Scozzafava. And you're not that far behind Mr. Owens. But if it turns out he slips in — I know you don't think that is going to happen — but if he does, we have got a similar conundrum in New Jersey, as you know, where the Republican vote, many argue, is being divided between the established Republican choice and then a conservative candidate who isn't quite as conservative as you.

But the argument goes the same, that it is dividing the Republican vote. Do you think it is still better to elect a Democrat than to elect the moderate Republican in that event?

HOFFMAN: Well, first of all, I want to point out that the Republican is actually more liberal than the Democrat in this race. And from that point of view, we're looking at a situation where we have a congressional district, in our polling number, considers themselves to be 46-56 percent conservative.

And that's across the lines, whether they're Democrats, independents, or Republicans. So, I think this race is very doable for a conservative candidate such as myself.

CAVUTO: All right.

HOFFMAN: And the fact, in New York (AUDIO GAP) you only need more than 33 percent, more than 1 percent of the other two candidates to win the race.

CAVUTO: It might happen. It might happen.

All right, Mr. Hoffman, we are going to watch very closely, Doug Hoffman. My invite out to your opponents as well any time.

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