This is a rush transcript of "Special Report With Bret Baier" from May 29, 2009. This copy may not be in its final form and may be updated.

(BEGIN VIDEO CLIP)

BOB MOFFIT, HERITAGE FOUNDATION: They've got a problem right now in trying to figure out exactly how they are going to pay for a $1 trillion expansion in healthcare over the next ten years. And frankly, it doesn't seem as if they have any good options.

LEONARD BURMAN, URBAN INSTITUTE: The value-added tax is a sales tax basically, but it's collected in stages from each producer. So the farmer would pay 10 percent on the value of the goods that he sells to the wholesaler, who would pay 10 percent on the amount that they add. And then the retailer would collect 10 percent on that margin as well.

It adds up to, in that case, a 10 percent sales tax.

(END VIDEO CLIP)

BRET BAIER, "SPECIAL REPORT" HOST: So how will the Obama administration pay for its proposed healthcare initiatives? One of the things being talked about is a tax on soft drinks, alcohol. But if you add it up all up, it's still not enough. So the value added tax, the VAT, is being talked about, roughly, as you heard there, a sales tax on everything. Now, if you look at polls, the latest Rasmussen Reports poll, national sales tax, when it deals with revenue for the government overall, it is opposed by 68 percent of the people. When you phrase the question that the revenue goes specifically for healthcare, it's opposed by 49 percent of those polled. What about this? Let's bring in our panel, Juan Williams, News Analyst for National Public Radio, Nina Easton, Washington Bureau Chief of "Fortune" magazine, and syndicated columnist Charles Krauthammer. Nina, value-added tax?

NINA EASTON, WASHINGTON BUREAU CHIEF, "FORTUNE" MAGAZINE: Well, we have experience with this in Europe, of course. And it's basically a hidden sales tax that taxes the producers along the way. But it is a sales tax on people.

And you know, it is going to be, I think, economically, it could be a real drag on the economy the same way it has been in Europe. But politically, it's a way to hide a tax. I think governments view it as a way to tax without overtly raising income taxes, for example, which is considered more politically explosive.

But, in fact, it would break Obama's promise to not tax people or households that earn less than $250,000. He would have to do something like re-jigger it so that it's higher on yachts and jewelry, for example, and that people who buy at the lower end of the income, you know, people who buy, say food, leave food out of it, leave goods at the lower end of the income spectrum, you know, free of the VAT.

So they would probably try to make it more progressive.

BAIER: Charles?

CHARLES KRAUTHAMMER, SYNDICATED COLUMNIST: The VAT is the biggest ATM machine in the world. And, as you say, it is used in Europe. And it is successful in bringing in cash because a small tweak of it, a tiny increase, which is hard to see in disguise, brings in a lot of revenue, and that's why it's liked in Europe and used.

The reason that people are talking about it here is because the expansion of healthcare is going to be so expensive under the Obama plans.

Originally, the idea was that the cash cow would be the carbon tax, the cap and trade system, in which the government sells pollution rights.

The problem is that it's been working its way in Congress, and in order to appease the Midwestern states that are coal producing and that are industrial and that would be ruined under a carbon tax, it has been re-jiggered so that over 80 percent of the permits will be given away for free. So no revenue.

So in the absence of that, the discussion of a VAT is beginning.

Now, conservatives have talked about it in the past, having a national sales tax, but as a replacement of the income tax, because income taxes is intrusive. It's tyrannous. You have to keep receipts on everything in your life.

BAIER: Not as a supplement, too.

KRAUTHAMMER: Right. And if you were going to do it as an alternative — Huckabee spoke about it as an alternative, which makes sense.

But what, of course, Democrats, who want to have run everything want to do, is to have income tax and a VAT, which puts them up to the level of the European taxation, which is about 50 percent of GDP.

BAIER: Juan?

JUAN WILLIAMS, NEWS ANALYST, NATIONAL PUBLIC RADIO: In fact, one of the calculations is possibly that you could have a VAT, and it would eliminate the need for income tax, especially on lower income people, so that if you combine the idea that lower income people are getting a healthcare system that would provide for them, plus they were being spared some of the income taxes that they now pay, that they would actually come out better.

And that's going to be part of the argument that the Obama administration might make, that, in fact, they are not going back on their promise of not raising taxes on those who make less than $250,000, but that in combination, that the benefit would be great for those at the lower end of the economic scale.

BAIER: Two concerns — one is all the liquidity that has been pumped into this economy, the concern is if you don't turn the spigot off in time, that inflation starts goes up quickly.

With a VAT, then you're adding on top of that, concern, right?

EASTON: Yes. And this whole question of how to fund this government — already this week, this increasing government, these huge deficits we have, already this week, there was concerns from investors that a $2 trillion bond issue coming up this year over the course of this year has left investors wondering if there is people there to buy it.

So I think that there is a real concern this about how to fund both the deficits and the debt that we're building. And I do think that we are looking at higher taxes down the road. I think this administration is going to be moving in that direction one way or another.

WILLIAMS: I think what's getting lost in our discussion of this is the value of having healthcare reform.

Now, the people at the White House, and this is led actually by Rahm Emanuel's brother, Ezekiel, who is pushing this onto the table, is pushing this Value Added Tax onto the table, and Max Baucus, chairman of Senate Finances, also said it has to be part of the discussion, let's not hide it, is that having healthcare reform take place right now, before you get locked into the 2010 cycle, is an imperative for the Obama White House.

He has been on the phone. He has his people out campaigning campaign style — get healthcare reform. Put pressure on the Senate now.

BAIER: At the expense, perhaps, of the economy?

WILLIAMS: Well, the question is, would it be at the expense of the economy? Because, remember, if you get a healthcare reform system, the Chamber of Commerce is behind that. They think that, in fact, it will help American business if we have healthcare costs under control.

KRAUTHAMMER: Not if it breaks the American economy and it breaks the bank.

WILLIAMS: How is it going to break the bank if we have healthcare costs under control, Charles?

KRAUTHAMMER: Look, it is not going to be under control. Why are they looking for a source of revenue if it is going to decrease costs? It is going to increase about a trillion, and that's why everybody is speaking about a new tax.

BAIER: Last word, Nina.

EASTON: I was just going to make Charles' point. This whole question, they were going to fund this largely from reducing costs in healthcare. I don't see that.

I mean, if public healthcare programs and Medicare costs are going up.

WILLIAMS: I don't they were ever going to find it from that.

EASTON: No, but they are going to create a public option, probably, and that's supposedly going to help lower costs. How is that going to lower costs?

BAIER: Much more on this, we promise.

We will talk about the relative survival prospects of the president's Supreme Court pick, Senator Roland Burris, and also California's anti-gay marriage law. That is all next on the Friday lightening round.

(COMMERCIAL BREAK)

(BEGIN VIDEO CLIP)

PRESIDENT OBAMA: I'm sure she would have restated it. But if you look in the entire sweep of the essay that she wrote, what's clear is that she was simply saying that her life experiences will give her information about the struggles and hardships that people are going through that will make her a good judge.

(END VIDEO CLIP)

BAIER: The president talking to NBC about his Supreme Court pick, Sonia Sotomayor, specifically about a comment she made in 2001. Since then, the White House has said he didn't mean to say it was an essay. It was actually part of a lecture.

And here is the comment that has been getting a lot of focus, "I would hope a wise Latina woman with the richness of her experiences would more often than not reach a better conclusion than a white male who hasn't lived that life."

We are back with the panel, the lightning round. Charles, what about the president walking this back?

KRAUTHAMMER: Well, you can believe him or your lying eyes. He says that her intentions were to say that being a Latina, the physiology and the culture, makes her a good judge. But as we saw, she said it makes her a superior judge to a white male.

Her job is to say it was a mistake. I take it back. Until then, this is going to haunt her. You can't explain it away.

EASTON: I think it's ironic that the one thing that the president said he really wanted in a judge, empathy, is the one thing that's really become the explosive issue in all of this.

So yes, he is trying to defuse it. He is trying to draw it back a little bit, saying these inform her decisions. She is not trying to say she will make a better judge than a white male judge.

And if they can get that out of the way, they can position her as more of a centrist on abortion and business issues, for example.

BAIER: Juan?

WILLIAMS: There is no getting away from it. On the face of it, it looks like a racist statement. And, of course, everyone throws back that if a white guy was saying it, it would be absolutely viewed as a racist statement.

But you read it in the context of what she said, she was talking about how she grew up in the South Bronx, spent eating pig intestines and all kinds of Puerto Rican food and watching old men play dominoes.

And she comes to the point where she says of course this life experience growing up in poverty, people struggling, puts her in a position, she thinks, different than other judges who haven't had these life experiences. And that's what she is trying to say.

But on the face of it, bad choice of words, and absolutely explosive, the kind of thing that will lead other people to quickly tag her.

So it is not only the president is going to roll it back. She better roll it back.

BAIER: Senator Roland Burris is in trouble. He has said from the beginning that he did not pay for his seat, pay to play, giving contributions to then Illinois Governor Rod Blagojevich. But there is a wiretap that shows that he had a conversation with the governor's brother.

Juan, is this going to explode into something?

WILLIAMS: Well, you know, ideally, it would, because, clearly now, he lied to the ethics committee that was investigating this in Illinois. And so you have two people in Illinois in the state legislature who want to get him out.

I don't think they're going to do it, because it would require action here in the U.S. to get out one of their own.

Dick Durbin, however, has said we got enough things going on here. But I won't support, I will not support Roland Burris in 2010. I think that's the message Democrats want done to send to Burris. Just go away, get out, leave us alone.

BAIER: But we are talking about if it explodes from 60 to 59, potentially.

EASTON: From 60 to 59...

BAIER: Votes in the Senate.

EASTON: Yes, but they would fill it with a Democrat. So I don't think that is the issue. Roland Burris' problem is he clearly, as Juan said, he committed perjury. This is more of a question — this is more than a question of keeping his Senate seat. He specifically said in a sworn affidavit there is not any contact between myself or any of my representatives with Governor Blagojevich or any of his representatives.

And now we find out there were contacts. That's pretty clear- cut.

KRAUTHAMMER: As you know, Bret, I'm not high on empathy. I have been attacking it all week about judges.

But here I get weak. You know, this guy is such a sad sack.

(LAUGHTER)

KRAUTHAMMER: He is an incompetent scoundrel. On the tape he is dodging around, winking and shuffling around, dancing around a bribe, and trying to imply he will give it, he won't.

I'm not sure he can be indicted on the stuff on that tape. However, it looks like the Senate will probably have to take action on the ethics.

BAIER: OK, down the line very quickly — is Prop 8, the new ruling from the California Supreme Court, upheld the way it stands right now, or does it get changed?

KRAUTHAMMER: No, it's going to be upheld. It is the sovereignty of the people, the court upholds a referendum, no way it will be changed. It could be changed in a referendum in the future, but for now it stays exactly where it is.

EASTON: I think the California Supreme Court, by the way, made a good decision in this in upholding that people did vote to amend the constitution. And I think that people should be making this decision, not courts.

BAIER: Go to run.

EASTON: And it's Juan's turn.

WILLIAMS: The Supreme Court may have something to say about due process here.

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