This is a partial transcript from The O'Reilly Factor, February 17, 2004 that has been edited for clarity.

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BILL O'REILLY, HOST: In the "Unresolved Problem" Segment tonight, one of the biggest frauds in American politics is that massive federal spending can solve social problems.

Here's an example. The federal government spends almost $7 billion a year providing school lunches to poor American kids. But THE FACTOR is investigating a story -- and we will have the details for you in the next few days -- that, in many cases, school lunches are going to rich kids because nobody watches who's getting fed because the more kids on the school lunch programs, the federal money going to the schools. Again, we will have that story coming up.

Also, listen to this. The Bush administration has announced the largest increase in federal funding for the arts in 20 years. The country doesn't have any money, but that includes federal funds for gay radio and federal dollars to pay for a play called "Sex Parasite."

Joining us now from Washington is Jacob Sullum, the senior editor of "Reason" magazine, who is following the arts deal. "Reason" is a libertarian publication.

All right. So are you going to tell me again that the feds just don't care, they're going to give money to anybody they want to give money to, and it doesn't matter? Is that what's going on here?

JACOB SULLUM, "REASON" MAGAZINE SENIOR EDITOR: I think the NEA does not amount to very much money in the context of the federal budget. It's about $120 million this year. The president wants to up it to about $140 million.

But, symbolically, it's important because, if ever there were a completely unnecessary government program, it would be this one. The total NEA funding amounts to maybe 1 percent of total art funding in the United States, so I think culture probably would survive, if we eliminated the NEA...

O'REILLY: All right.

SULLUM: ... and...

O'REILLY: The same argument is being put forth by the PBS people, and -- well, it's not a lot of money, $120 million here, $120 million there. I mean you start to mount up, but I -- look, what's "Sex Parasite"? Do you know what that is?

SULLUM: I've heard of the grant for it, but I'm not familiar with the play, no, but the point is this sort of thing is inevitable when you have the government involved in funding the arts.

They're going -- especially if they see their function as funding things that are sort of controversial, provocative, and avant guard, they're going to offend people, and people are rightly offended when they're forced to subsidize speech with which they disagree.

That's a kind of tyranny, to force people to cough up their hard- earned tax dollars in order to pay for things that deeply offend them, and you may recall...

O'REILLY: OK. This doesn't make any sense because President Bush is a conservative guy. I don't think he's going to go see "Sex Parasite," all right.

SULLUM: No, you're right.

O'REILLY: I don't think he's going to be -- but Laura Bush made the announcement.

SULLUM: Well...

O'REILLY: The first lady made the announcement that the NEA is getting the largest increase in funding in 20 years. So the Bush administration looks like it's proud of it.

SULLUM: Yes. Well, most of what the NEA does is not this sort of avant-garde, controversial stuff.

A good example is this big touring program with Shakespeare plays that they've been doing recently, sending theater troops to perform Shakespeare plays, four different plays, in about a hundred different cities around the country.

Now that's very nice. It's perhaps not very controversial, despite the violence and incest and cross-dressing in Shakespeare. It's not very controversial, but it's completely unnecessary. It's not as if people would not be exposed to Shakespeare in the absence of this program.

And so, even though it looks nice and not too many people are upset about it, it's not what we should -- what the federal government should be doing. It's certainly not authorized by the Constitution, and it's not a good use of our tax dollars.

O'REILLY: OK. Outright Radio, which is a gay radio concern -- I have never heard of it. Nobody knows what it is -- only gets $10,000, but, obviously, that's not going to please people. Then they've got -- the Los Angeles Museum last year got $75,000 to run an exhibit called "Art and the Feminist Revolution." I know I was first on line for that.

Why is this happening? I mean, again, this doesn't look like it's in President Bush's bailiwick, he doesn't care. Laura Bush, though, gets out in front of it. What does it benefit the Bush administration to do this?

SULLUM: I think they don't want to be seen as too extreme. I think they're playing to the middle by showing they're willing to support the NEA and support the arts, despite the controversies with criticism from conservatives.

But I think, if you have the government doling out these grants, inevitably, you're going to have the occasional piece of provocative art that offends people because of its political or moral content, and you really can't solve this problem because, if the government comes up with a rule that says, OK, we're not going to fund anything that portrays homosexuality, say, in a positive light, that raises constitutional problems.

So there really is no way to avoid it except to simply eliminate the program.

O'REILLY: All right. Mr. Sullum, we appreciate you taking the time to go on. Our tax dollars at work. We'll continue -- we're going to have that school lunch program coming up as well.

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