This is a rush transcript of "Special Report With Bret Baier" from July 1, 2009. This copy may not be in its final form and may be updated.

(BEGIN VIDEO CLIP)

MITT ROMNEY, (R) FORMER PRESIDENTIAL CANDIDATE: Republicans have to do what is right for the country. And I'm not sure whether politics are good or bad, but frankly, at a time like this, you have say what's right for America and fight for it as hard as you can.

When the stimulus bill is wrong, when it wastes money, when it threatens the viability of our currency long term, you have to say no. When the health care plan says we are going to have the government take over health care, which is roughly a fifth of our economy, Republicans are going to have to say no to that.

(END VIDEO CLIP)

KELLY: And now some analytical observations from Fred Barnes, Executive Editor of "The Weekly Standard," Mara Liasson, national political correspondent of National Public Radio, and syndicated columnist Charles Krauthammer.

Good evening, panel. It's a pleasure to be here with you.

All right, Fred, let me ask you about Mitt Romney now. He has emerged, to his benefit, we have had two contenders, obviously, knocked out of the next presidential race. So what of his comments, and is he the leading contender now for the GOP nomination?

FRED BARNES, EXECUTIVE EDITOR, "THE WEEKLY STANDARD": Well, I think he is certainly a contender. He is the one Republican, Megyn, who has helped himself in the last six months since the last election, eight, nine months. And, look, he has a lot to say. He knows a lot. But everything is going to change after the 2010 election when all these new faces will come into the Republican Party, and even the election this fall. If Chris Christie and Bob McDonnell are elected governors of New Jersey and Virginia respectively, they will become big figures, particularly Christie, being elected if he is elected in a populist Democratic state like New Jersey.

And then look at 2010, California. What if Meg Whitman of eBay becomes governor? She has a tough primary against Steve Poizner, the insurance commissioner. If you have a Republican governor of California, they're big. And there are others, too. Think of Rudy Giuliani runs in New York and is elected governor. That would sure line him up for another race. Or Kate Hutchinson, the senator, who is going to run for governor in Texas. She has a tough primary too against the incumbent governor, but if she wins, that's a huge thing. So, look, all those names are going to be out there. And Mitt Romney, if he runs, he will have a lot of very strong opponents.

KELLY: Mara?

MARA LIASSON, NATIONAL POLITICAL CORRESPONDENT, NATIONAL PUBLIC RADIO: I actually think that Mitt Romney is doing really well in the ridiculous 2012 GOP sweepstakes, such as they are. I think a lot of those people that Fred just mentioned, first of all, if they win, they will have their hands full. They can't turn right around and mount a presidential race, which is a big thing. A lot of those people he mentioned are pro-choice. I think what Mitt Romney is doing is smart and why his numbers have gone up since the 2008 race is he is zeroing in on the biggest weakness that President Obama has, and that is spending and the deficits. When he talked about the viability of our currency long term, what he is talking about the long-term deficit situation, the possibility of inflation, and the dollar being hammered. And I think that that's the soft spot, at least right now, of the Obama administration. So he's smart to do that. The other person who everybody was watching, Sarah Palin, I think hasn't gone home to do the homework that everyone thought she would do, go home and bone up on foreign policy, kind of shore up all of her weaknesses. She has had a rough time in the press. It's been unfair, but she also hasn't done the things she needs to do.

KELLY: How about it, Charles?

CHARLES KRAUTHAMMER, SYNDICATED COLUMNIST: I would agree. Romney really is the frontrunner. He has done himself well. He is a grown-up. He knows economics. He's trusted on that.

There is also a tradition among Republicans of nominating the next in line, as we did with George Bush, Sr. in 1988, Dole in '96, and McCain in '08, sort of the last grown-up who was left over from the last campaign.

And I think that Romney has done well. Look, he is the guy who is as clean as clean can get. You are not going to wake up in the morning and discover he is crying in Argentina. This is a solid guy and he's got a record.

Now, as to Palin, I agree entirely with what Mara said. She is — she has star power without any doubt. She has an extremely devoted following. But she is not a serious candidate for the presidency.

She had to go home and study and spend a lot of the time on issues in which she was not adept last year, and she hasn't. She has to stop speaking in cliches and platitudes. It won't work.

It could work for eight weeks if you're the number two candidate, as she was last year. But even so, she got singed a lot in that campaign. You cannot sustain a campaign of platitudes and cliches over a year and a half if you're running for the presidency.

KELLY: Is that true, Fred, she's not a serious contender?

BARNES: I don't know that anybody is a serious contender right now.

But I think Charles is a little premature in writing her off. I agree she has homework to do. There is plenty of time to do that.

What strikes me about what's going on now with that story in "Vanity Fair" attacking her every which way is how much liberal elites, and the media, which is a big part of the whole liberal elite class, and even some Republican elites hate Sarah Palin. They loathe her.

And it's not really political. Liberals don't think she is a serious challenger for the presidency, but they hate her anyway. It's cultural. She's everything they don't like — middle class, working class woman who is pro-life and is a serious Christian.

Culturally they hate her, and they take every chance to pound her. "Vanity Fair" magazine, 9,000 words attacking Sarah Palin.

KELLY: That article is citing Republican McCain insiders.

BARNES: There are Republican elites who don't like her, either. These people in the McCain — I know who they are, and I suspect who they are, though I don't know for sure. And these are people who trashed her, partly to justify themselves and the poor job they did in the McCain campaign.

KRAUTHAMMER: Fred, look, I would agree on the viciousness, on the unfairness of the attacks on her ever since her nomination last year.

But still, that doesn't change the fact that if you want to be a presidential candidate for the Republican Party, you have to be able to speak on issues of which she cannot yet.

And yes, there is a time, but months are wasting away. She ought to bone up, and then I think she would be reconsidered as serious candidate.

KELLY: Did you want to get in on that, Mara?

LIASSON: I agree with Charles. I expected her to go home and kind of import to Alaska a kind of tutorial board of people who could really work with her.

And she's smart. She's a quick study. She could do it if she wanted to. Foreign policy, domestic policy, economics, that's what I thought she would spend the next couple of years doing, and she hasn't.

BARNES: And the truth is there are so many people who would answer her phone call and be on the next plane up there to do exactly that.

KELLY: Well, it is still early.

BARNES: It's very early.

KELLY: Well, President Obama is taking heat after leaving the door open to a tax proposal he adamantly campaigned against. The FOX all-stars weigh in on Mr. Obama's promises and how he is doing on keeping them.

(COMMERCIAL BREAK)

(BEGIN VIDEO CLIP)

BARACK OBAMA, (D) PRESIDENT OF THE UNITED STATES OF AMERICA: If you are a family making less than $250,000 a year, you will not see your taxes go up.

(APPLAUSE)

Not your capital gains tax, not your payroll tax, not your income tax. No tax. Your taxes will not go up.

(END VIDEO CLIP)

KELLY: We're back now with our panel.

Pretty unambiguous there, the president saying no taxes, no taxes are going up if you make less than $250,000 a year. Mara, is he already on his way to violating that?

LIASSON: I think he is. I believe that not all broken campaign promises are created equal. Some of them are OK to break, or at least the consequences are not so terrible.

This one is a pretty big one, and it is one that a lot of his political advisors don't think he should break, because even though it never rose to the level of "read my lips," it's pretty serious.

On April 15, long after he was president, he repeated that promise, and he said, if you make under $250,000, we will not raise your taxes by a single dime. So he has repeated this since he's been in office.

However, when it comes to how to pay for health care, and the Senate Finance Committee is struggling mightily to find a way to pay for. They keep on coming back like moths to a flame to this idea of taxing employer-provided health benefits, which would inevitably raise taxes on people making less than $250,000.

And the president, even though he says he doesn't like that idea, and he has given Congress an alternative, which they've rejected, his advisors have been remarkably open.

And they don't describe a promise as a promise. They describe it as a goal.

And I think that's where we're going, because they have to come up with the money to pay for health care.

And he also keeps on saying over and over again, this bill will be deficit neutral. This bill will be paid for. I don't see how they pay for it without raising taxes on people who make that amount of money.

KELLY: Charles?

KRAUTHAMMER: It's a promise that becomes a goal. It's on its way to becoming a betrayal. It certainly will happen on taxes. There is no doubt on that.

The way he reversed himself on a host of issues on detention without trial, on rendition, on state secrets and on having lobbyists in his administration. But all that is penny ante stuff.

The real betrayal of this presidency, the premise of the campaign last year, which he talked about endlessly, and the audiences were swooning over this, was he was going to introduce a new politics. He was going to have a politics of the people.

He would take the lobbying and the lobbyists and the influence peddlers out of government, the money changers out of the temple. That is what he represented.

All that was rubbish last year, and now it's all the more so. We have had, because of his ambitious government takeover, at least attempted, on stimulus, on health care, on cap and trade, which is the entire energy industry, with so much allocation of capital out of Washington, the frenzy of lobbying in Washington has been unprecedented.

It's not business as usual as he promised. It's worse. It's the biggest frenzy of lobbying in American history. It's no accident that the oil and gas industries have 50 percent increased in lobbying expenses, and wind industries is on its way to a tripling of its expenses on lobbying. All this is as a result of his ambitions of regulating and controlling the economy.

If that happens, the increase in lobbying is absolutely inevitable and is happening before our eyes right now.

KELLY: Fred?

BARNES: You know, what Charles says is correct. The defining idea of the Obama campaign, of the Obama candidacy, was that he's different from the other candidates. And it's not that he has more experience, obviously he didn't. It is not that he knows more about the issues and is more knowledgeable and his ideology is pure liberalism or something like that.

It wasn't that. It was that he would change Washington, he would change business as usual, get rid of the polarization. He would be bipartisan. It would be a completely different town.

And I think there is more business as usual than usual. The first thing, he turns his agenda over to Democrats in Congress, the most partisan group in town. And lobbyists, well, he has hired some, but it's just a bunch of different lobbyists who have influence. It's the lobbyists for liberal interest groups. He hasn't bucked a single one of them.

KELLY: Does he pay any sort of a price for this, do you think?

LIASSON: I don't think he pays a price for not, quote, "changing Washington." If he gets the economy moving again, if he can pass health care and his other initiatives, and he does it without paying for them in a way that angers a lot of people, I think that he can get out from under some of the rap that he has not lived up to every one of his promises. No president does. He has to enact his agenda and look like he's being successful.

KRAUTHAMMER: But the influence of special interests, the log rolling, the corrupt compromises and deals on cap and trade alone are quite scandalous.

And you are going to have it in health care. You already had it in the stimulus. That's going to hurt him in some ways because it undoes the premise of a clean and new kind of politics. This has all been turned on its head.

BARNES: Sometimes when you actually redeem a campaign promise, you get in trouble. And this has certainly happened on the promise of closing down Guantanamo. He doesn't know what to do.

LIASSON: That's one he probably should have broken.

KELLY: All right, panel, thank you so much.

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