This is a rush transcript from "On the Record," January 15, 2010. This copy may not be in its final form and may be updated.

GRETA VAN SUSTEREN, FOX NEWS HOST: You know, they must think we're all stupid and wouldn't notice! But they just did it again, President Obama with the Democratic leadership meeting behind closed doors, no C-SPAN, giving the unions a deal so sweet that it makes the $300 million Senator Ben Nelson and Nebraska got look cheap! For purely political reasons, a special interest group, unions this time, got a deal and don't have to pay tax on Cadillac health care plans for several years.

Karl Rove joins us live. Karl, before we get to this new deal for the union -- you met -- you told me earlier about some rescue workers trying to get into Haiti.

KARL ROVE, FORMER BUSH WHITE HOUSE ADVISER, FOX CONTRIBUTOR: Yes, there are urban rescue teams which are organized by FEMA. There are about 27 of them around the country. They are sort of the -- they're one of the best assets we have for a crisis like Haiti. These are the people with specially trained dogs, with special equipment that can detect people who are in an urban setting, that have been crushed under a building or -- or somehow, you know, trapped. And there are 27 teams. They've been organized in six units to go to Haiti. My understanding is, as -- that they were -- they were mobilized Wednesday morning.

As of tonight, Friday night, my understanding is, is that a number of these teams -- a Texas team is still waiting for transportation out of Texas. The Ohio team, which is a midwestern urban rescue team, is waiting (INAUDIBLE) These are the people who need to be in there. And the Chinese have already got their urban rescue teams into Haiti. Some of the teams are starting to make their way there, but these people have not been prioritized in probably the way that they need to be.

VAN SUSTEREN: And probably the problem that we ran into, where we were literally circling for three hours. And then when we found out that they were trying to get search-and-rescue dogs, and we were getting low on fuel, we got out of sequence because, obviously, the dogs need to get there ahead of us.

ROVE: Right.

VAN SUSTEREN: All right. The unions -- they got a special deal! Like, you know, what's so special about them? I mean, what -- you know, that's what's so extraordinary, is, like, why did they get the deal?

ROVE: Yes, well, because they're political supporters of the administration. And they an eight-hour-long meeting which they hammered out this deal. This has to do with the so-called Cadillac plans. One of the ways to rein in rising health care costs and pay for the Obama health care plan is to, in essence, tax these very generous plans and -- some of which go to unions, some of which go to, you know, sort of, like, you know, mortgage, you know, investment bankers on Wall Street.

And what they agreed to after an eight-hour-long meeting was if you work for a union or you work for a state or local government and you have a Cadillac plan, you don't have to pay the -- pay the -- pay the tax for five years. And even when you start to tax -- pay the tax, you get taxed at the same rate, but at a different level. That is to say, there's about a $2,500 gap between the level at which it kicks in for a non-union, non- government worker versus a union and government worker.

So we now have two classes of people. If you're a union guy whose union supported Barack Obama or a state or a local government employee, you get exempted from the tax for five years and then get a higher limit than if you are non-union and non-state and state and local government.

VAN SUSTEREN: You know, they promised us transparency, and I actually -- believe it or not, I finally discovered the transparency. And that's this, is that it is so obvious that those who are buddy-buddy get the deal on this health care. And even the president of the AFL-CIO said as much the other day when he said, basically, there will be hell to pay -- those are my words, not his -- come November our guys, the union guys, don't get the deal.

ROVE: Right. Well, and remember, they're getting it all along. For example, the United Auto Workers -- we talked about this earlier. The United Auto Workers' principal coverage in the state of Michigan is through Blue Cross/Blue Shield of Michigan. The have union board members -- unions -- union members are on the board of the company, and they are exempted from the taxes being levied on insurance companies. There are only two Blue Cross/Blue Shield companies in America exempted from the tax, in Michigan and Nebraska.

VAN SUSTEREN: Speaking of Nebraska, this is my favorite! Speaking of Nebraska -- glad you raised that. A letter today from Senator Ben Nelson to Majority Leader Harry Reid. And this is my favorite line in it because he's now saying, you know, that -- you know, that $300 million deal Nebraska got -- he said that that $300 million deal was intended to serve as a placeholder that would be removed during the conference negotiations and replaced with a mechanism applying to all state governments.

ROVE: You know what?

(LAUGHTER)

ROVE: It's so laughable! Did Senator Nelson say that...

VAN SUSTEREN: I did laugh!

ROVE: ... at the time? No, he didn't. In fact, what I loved about the letter is he twice says, I'm asking you to remove that Nevada -- the Nebraska privilege and replace it with a -- with something for all states. Now, they're not going to do that because this is literally hundreds of billions of dollars over the course of the bill because what they've done is they've said, We're going to -- we're -- half the people who get insurance coverage under this bill, the Senate bill, get coverage by being dumped into Medicaid, where the state shares part of the cost of it.

This is why -- this is how they kept the total cost down, was they said, OK, we're going to have Florida and Texas and California and every state pick up a substantial part of the cost of insuring half of the people we're extending coverage to. So they now can't undo -- they can undo the Nebraska deal and rip it out, but they can't do what Senator Nelson claims that he wanted to do all along...

VAN SUSTEREN: I can't -- I can't...

ROVE: ... which is clearly not true, which is to not have any state bear this burden.

VAN SUSTEREN: You know, I -- I -- I mean, it's so bad -- this letter is so bad -- you know, I just -- you know, for the last couple nights, I've been (INAUDIBLE) about transparency. I'm off transparency because you know what my rub (ph) is now? I'm actually insulted they think we're that stupid.

ROVE: Yes.

VAN SUSTEREN: I mean, it's, like (INAUDIBLE)

ROVE: Well, it is...

VAN SUSTEREN: ... behind closed doors...

ROVE: ... a remarkable performance.

VAN SUSTEREN: ... no C-SPAN. Now we get this ridiculous letter from Senator Ben Nelson -- who's a nice guy! I don't know what his problem is with this!

ROVE: Well, he thought he was getting a typical Washington deal and he was going to get a sweetheart deal for his state.

VAN SUSTEREN: He got caught with his pants down!

ROVE: And look -- look, this is not the only thing. Remember, he got a special arrangement in there for Mutual of Omaha does not get taxed, the tax levied on it for its Medigap policies. Every other insurance company in America that is giving Medigap policies -- those are the policies for seniors that cover the difference between what your expenses are and what Medicare is willing to cover -- every other insurance company in America gets socked with tax on those except Mutual of Omaha.

So I mean, he had three deals, Blue Cross/Blue Shield of Nebraska doesn't get taxed like every other Blue Cross company except the one in Michigan. Mutual of Omaha gets exempted, like -- like -- unlike all -- virtually every other company in America. And then we had the "Cornhusker kickback," in which the state of Nebraska got the cost of its Medicaid expansion paid for by the federal government, unlike any other state in the union except partially in -- in -- in Louisiana.

VAN SUSTEREN: And now, of course, today the unions get their special behind-the-scenes closed-door no C-SPAN transparency deal.

But anyway, Karl, if you'll stand by. Coming up: Well, it's blistering! White House senior adviser David Axelrod actually skewers Karl Rove this morning. What does Karl think about it? Karl's going to get his chance to tell you next.

Plus: It's hot, very close, the neck-and-neck Senate race in Massachusetts. Polls open in four days, and the panic is on! Tonight, new surprising information on the hottest political race in the country.

(COMMERCIAL BREAK)

VAN SUSTEREN: Tonight no one knows who is going to win that Senate race in Massachusetts, and no one dares even to bet. It is so close and so important not just for Massachusetts but for you.

This race could kill Senate Majority Leader Harry Reid's filibuster- proof majority. And you know what that means -- it could be big trouble for health care reform.

So if you think the Democrats aren't sweating this one, listen to this -- President Obama has changed his plans and is going to Massachusetts to campaign for Attorney General Martha Coakley. Karl Rove is back with us.

That's unusual -- he wasn't going to campaign, now he is.

ROVE: And if you think about it -- we have this international crisis going on in Haiti, and rather than manning his station he's heading off to campaign for Coakley.

VAN SUSTEREN: He can man Haiti from the plane.

ROVE: But the optics of it aren't particularly good.

And also, remember, the president has an uneven record in this. In the fall, last fall he went to Virginia and New Jersey not once, which is customary for a president, but he devoted three days and went five times to Virginia and New Jersey, which is really unusual -- made five stops, and lost both of those races.

And the polls didn't show he had any impact at all. So the question is by going he's going to put his imprimatur on this, and if he wins he will claim credit at the White House for turning it around. But if they lose I suspect we'll see Coakley blamed for being a bad candidate.

But you're right, it's a very close race, it's going to be very interesting next Tuesday night to watch the results.

VAN SUSTEREN: After the trip to the Copenhagen for the Olympics I would be gun-shy, but I tend to be cautious on those things.

All right, you got skewered today by David Axelrod in the "Washington Post." He even says -- he says even at the end "Everyone is entitled to his opinions but not his own facts. I urge him," meaning you, "to take that to heart." He says you are dead wrong.

ROVE: I agree with him, facts are important. And the fact of the matter is this -- this administration last February put out a budget plan that said they wanted to double the national debt in five years and nearly triple it in 10.

During George Bush's years in office the annual deficits ran about two percent of GDP, and that compares to 1.7 percent of GDP since World War II. This administration is planning using very optimistic projections about economic growth, they're nonetheless projecting the deficient on their watch will run 5.1 percent of GDP.

I thought this was really unusual. Let's step back. I wrote 200 words for the "Washington Post" on the Democrats in Congress. And Mr. Axelrod while all these things are swirling around in the world proceeds to write 700 words for the "Washington Post" attacking me on a subject that I barely touched on, which was the deficit and spending, and which I talked about Congress, not the administration.

So I'm going to be responding to Mr. Axelrod and setting the record straight by relying on the facts about what this administration has been doing on spending, deficit, the TARP, and other issues that he raises in the speech. Watch for it in the pages of the "Wall Street Journal" next week.

VAN SUSTEREN: So what do you think it was. If you said that your writing was about Congress and the White House via David Axelrod responds, he does 700 words to your 200 words, you got under his skin.

ROVE: I got under his skin. And look, any day that the Obama White House is sending forward one of its most senior people to respond to me is a day that the White House has wasted in its messaging.

VAN SUSTEREN: What he says is that President Bush 43 got $236 billion dollar surplus. He then says when President Obama got into office he got from President Bush a $1.3 trillion deficit.

ROVE: There's an interesting thing. Go back and take a look where was the deficit January 20th, 2009? Like $400 and some odd billion. The rest of the money, that other $900 trillion -- $900 billion came from pending that happened on the Obama watch.

He's blaming President Bush for a $787 billion dollar stimulus bill, a $30 billion expansion of the S-Chip, a $410 billion omnibus spending bill. So I thought that was really artful. We are going to blame on Bush spending that took place on our watch is what President Obama's chief adviser is saying.

VAN SUSTEREN: What he's saying is that they had to do that -- if I can be so -- try to interpret what he said and repeat what he said of it. He said the reason why they had to do was because of the laissez-faire and fiscal irresponsibility attitude excesses of the financial industry, and he says that helped create the worst economic situation.

ROVE: Isn't that interesting, because he talks about laissez-faire attitude towards regulation. Who was the accelerant that took a downturn in the business cycle and turned it into a worldwide calamity? Fannie Mae and Freddie Mac.

And who in 2005 when he came to the United States Senate eagerly and early joined a filibuster on the reforms that the Bush administration had been pressing for Congress to pass since February 2001? The newly elected senator from the state of Illinois, Barack Obama, who finally in September of 2008 voted to for the reforms that Bush had been pressing for to subject Fannie and Freddie to the same degree of regulation that bank, savings and loans, and credit unions.

The guy who had the laissez-faire attitude toward regulation was Barack Obama, Mr. Axelrod's boss.

Stay tuned. I've got a fact-based, numbers-based, logic-based response to Mr. Axelrod. But I thought it was interesting they read my 200 words and get a little exercised in the West Wing.

VAN SUSTEREN: So I guess it's fair to take away from this that you don't agree with Mr. Axelrod?

ROVE: There wasn't a single thing that I said in my piece that he specifically dealt with. What he simply said is, we're not responsible for the spending on our watch, and Bush did a bad job with deficits and the debt, when these people are planning to double the size of the national debt in their first five years. That's their plan.

I loved it. He says Bush didn't pay for the Medicare prescription drug benefit. Well, neither are they. He said Bush didn't pay for the wars in Afghanistan and Iraq by raising taxes. Well, neither are they. I'm getting ahead of myself. I'm going to have it all laid out in a very logical and fact-based way, next week. Stay tuned.

VAN SUSTEREN: I e-mailed the White House and asked if they wanted to send someone over to present me with some information, some research so that I can do this. I've heard nothing back from them. So I guess we'll have to wait and see.

ROVE: Hyperventilation instead of facts.

VAN SUSTEREN: I'll wait to read your op-ed and see if there's an op- ed in response back.

Before I go, who is going to win Tuesday?

ROVE: You know, it's Massachusetts, so your head says the Democrat, but my heart says Brown has run a superb campaign, she has run a lousy campaign. I think people in Massachusetts are fired up to have an independent voice, a conservative with principles and values.

And she has been a dreadful candidate who said I will get along and go along with Washington. And this week we saw it. Coming here to Washington to have a fundraiser among lobbyists representing pharmaceutical companies and insurance companies...

VAN SUSTEREN: Bad timing.

ROVE: It's not just bad timing, it's a bad thing to be doing in the final weeks of a campaign.

VAN SUSTEREN: Karl, thank you, and I look forward to your response in the "Wall Street Journal".

ROVE: Thanks.

Content and Programming Copyright 2010 Fox News Network, LLC. ALL RIGHTS RESERVED. Transcription Copyright 2010 CQ Transcriptions, LLC, which takes sole responsibility for the accuracy of the transcription. ALL RIGHTS RESERVED. No license is granted to the user of this material except for the user's personal or internal use and, in such case, only one copy may be printed, nor shall user use any material for commercial purposes or in any fashion that may infringe upon Fox News Network, LLC'S and CQ Transcriptions, LLC's copyrights or other proprietary rights or interests in the material. This is not a legal transcript for purposes of litigation.