This is a rush transcript from "Hannity," April 15, 2010. This copy may not be in its final form and may be updated.

SEAN HANNITY, HOST: Vice President Joe Biden once called paying your taxes a patriotic duty, but on this Tax Day, a new poll reveals that a majority of Americans believe their hard-earned dollars are being wasted.

A brand new CNN/Opinion Research Survey shows that 74 percent of those polled believe the government wastes a lot of their hard-earned tax dollars; 23 percent say some of their tax dollars are being misspent; only 3 percent said not that much.

Now, Americans all across the country are asking a simple question tonight: Does the government work for them or do they work for the government?

And today, the Labor Department revealed more bad news for the economy. Over a year after the president signed the stimulus bill into law, jobless claims are still increasing. Now, last week, first time requests for jobless benefits rose by 24,000 — well over what analysts had expected and that's even higher than the previous week which saw 18,000 new claims.

And here with analysis of those numbers and much, much more, we're joined by former presidential candidate host of the "Jury" — I'm sorry. I can't help myself, "The Fred Show". How are you?

FRED THOMPSON, "THE FRED THOMPSON SHOW": I had to fire her.

HANNITY: You fired her?

THOMPSON: Yes. She was getting too much attention, too much publicity.

HANNITY: Are you serious?

THOMPSON: No, actually. She had better things to do.

(LAUGHTER)

HANNITY: Why don't we just ask the simple question: Does the government work for the American people or do we work for the government? Who is working for whom here?

THOMPSON: Tax Freedom Day, I think, was one day last week. So, we've been working up until now this time of the year for the government. That's when our taxes for the year were paid off —

HANNITY: That's just federal taxes, right?

THOMPSON: That's just federal taxes. That's right and you got the rest of it.

No, you know, the government has got to raise taxes. If we're going to have a social spending program like the Europeans, we got to have a tax program like the Europeans too, apparently, and that's what we're going to work.

Fewer and fewer people are paying larger and larger percentage of the tax burden, as you know, almost half the people pay no income taxes at all. We're going to have more people in the wagon than we got pulling the wagon before long and that's not going to work. Those jobless numbers, you know, go hand-in-hand with those tax numbers.

HANNITY: What is it mean? I'm going to asking this question everywhere I've been. What does it mean — and I think this is pivotal — if we get to the point where we have a voting electorate that is not paying taxes? Seventy million Americans are not paying any part of the federal income tax bill, 50 percent of American households, and by the way, according to the Gallup Poll, they seem to be fine with that. What does that mean for the electorate?

THOMPSON: It's bad. Incidentally, you know, we got a volunteer tax system, anyway. You heard Harry Reid say a couple of years ago —

HANNITY: Oh, it's voluntary.

THOMPSON: It's voluntary.

HANNITY: OK. By voluntary, are you going to come visit me with a file in a cake?

THOMPSON: It's going to be voluntary like Harry is going to voluntarily leave the Senate at the end of this year, but —

HANNITY: He's going to voluntarily —

THOMPSON: That's what Democrats say the most stupid things for their justification for what they're doing, but the real underlying problem is that the people don't fully realize that we don't tax wealth in this country, talking about the wealthy. We tax income. And a lot of people out there working hard and finally building up to getting a pretty good income. Higher tax rates on them, you know, the income rates going up, the dividend rates are going up, the capital gains rates all going up before health care kicks in.

And you know, Atlas is going to shrug one of these days. I think that's what you're seeing out in the streets of America today. We're trying to keep up with this runaway spending and we can never do that. There's not enough rich people out there, not even enough middle income people out there to keep up with it.

HANNITY: Well, it's interesting because that was in the Wall Street Journal today, and I'm sure you probably. We start confiscating 70 to 91 percent we're still overspending in terms of what the government is actually spending.

Here's — I've tried to make a case for a long time and I think this was justified. They released the president and vice president's tax returns today. I'll give the president some credit, which might surprise some people.

All right. And he gave away the Nobel Prize which he didn't deserve, so that was some of the money, OK, but he makes $5.5 million. About 6 percent of what he makes, he gave over to charity, fair enough. I make the case that liberals are only generous with other people's money. How does Joe Biden get away with only giving $4,820 to charity?

I hate to say, but that doesn't seem very impressive to me.

THOMPSON: Well, I don't know. I don't know. I don't mind so much what Joe does with his own money as what he does with mine.

HANNITY: That's a good line.

THOMPSON: You know, people ought to give to charity, you know, however they feel. Some people give a lot of money to charity that doesn't show up on the tax forms as far as that's concerned.

So, I don't know about that, but I do know what he and the rest of them are doing with regard to people hardworking out there who don't come from much, who work their tails off their entire lives and get to where they're making decent money and all of a sudden they are the enemy.

And you know, I don't think people are going to put up with it. And I think the sheep might stand pretty still while he's being shorn, but when you start butchering him, you know, he's going to kick up a fuss.

HANNITY: Did you grow up in Tennessee?

THOMPSON: How did you guess?

HANNITY: I just found this thinking because that's not the analogy we use in New York, by the way, Senator. I think it's important, but if you look at — when the Bush tax cuts expire — we're going up to in this country at the top rate, it's going to 50 percent, especially when they add this millionaire surtax. Which, by the way, for people in New York and very expensive states, that is not the money that a lot of people around the country think that it is.

On top of it, there's a Wall Street Journal piece today of value added tax or a consumption tax. Rates start low and increase. And if we follow the European model after all the spending in the administration, then we're going to add a national sales tax. And then that's going to be on top of all the income taxes. And then we got to ask the question how do we create new wealth? How is anybody going to invest in business?

THOMPSON: Well, I think you're seeing that play out right now. I think it's the uncertainty. I think it's the higher taxes that are looming there that are causing people to think. I get a certain tax break if I keep my employment below a certain level, I'm not going to have those extra people.

I'm going to have to pay this much more in my tax. Small business people, you know, are the rich any more. Anybody who works for a living soon will be considered to be the rich any more. And I think that's definitely affecting the economy.

You know, it concerns me greatly. I think we're changing the face of America. And I think this VAT tax that Europe has, we're going to have European welfare system. We're going to have European tax system. And it'll be laid on top of the income tax. In Europe, I think it averages about 20 percent. And you mentioned, it goes up. If you average all those European countries together, you will find that the history of them combined is that the tax goes up about double. The tax is about double now in those countries what it was when it first started.

HANNITY: How real do you think this anti-tax movement is in the country? Tea Parties all across the country today. We saw elections that we didn't think we'd see in Massachusetts, Virginia, New Jersey and I want to get into specifics to that in the next segment, but do you think this movement is real? Do you think it is large? Do you think it'll have an impact in November?

THOMPSON: Yes.

HANNITY: You do?

THOMPSON: Resoundingly to all those things. You know, in 1994, I was elected in a sweep. You know, I thought I was a brilliant politician, didn't realize I was just part of a large group — there was a sweep going on in this country. A lot of people finally had them because we all came in.

We want to — it was much, much later than this when we discovered that something special was going on in the country at that time. It's much greater. It started much sooner. I think these Democrats are like a guy in the helicopter over the sea, you know, they're seeing the tsunami build up and they know their buddies are going to be on the beach when it hits the shore.

That's what we're seeing here in this country. People just — people just not going to put up with this, because the — you hear a lot about the concern with spending. Taxing is the other side of the coin — that is the justification for the spending, spending is justification for the taxation.

And you know, we're bankrupting our nation and we're now — Ben Bernanke, head of the Fed, Volcker who I have a lot of respect for, for other reasons, but other members of the administration now have discovered that we've got a fiscal problem in this country, after we passed health care.

HANNITY: After 2.4 trillion.

THOMPSON: Yes. All of a sudden, you know, the world is coming to an end. Volcker says by 2020 we're going to have be paying $1 trillion a year in interest payments. Where was this guy? Where were they when we were talking about the health care bill?

HANNITY: When we come back, we're going to continue more with the one and only Fred Thompson. We'll talk politics when we get back.

Plus, in studio, Col. Oliver North is here. He just returned from a trip from Afghanistan. He has an important update on the War on Terror and an analysis of President Obama's plans for withdrawal.

We will get to that. We have our great, great, Great American Panel and much more straight ahead.

(COMMERCIAL BREAK)

HANNITY: And we continue now with former presidential candidate, host of the radio show, nationally syndicated, "The Fred Thompson Show". Fred Thompson is with us.

All right — politics. A lot of people pundits will tell you this is a great year, great environment, Republicans can take over the House, Senate.

Why in the back of my head do I not like overconfidence with the idea that you feel that way? I want that sense of urgency to continue in people. Do you think people, Republicans, conservatives can get overconfident this election?

THOMPSON: I don't know. Because, I don't ever remember being here before. It's like, I said earlier, I don't ever remember being here this early before and feeling this strongly about this. It's not just the matter of the polls and the fact that it's going to be a good year for the Republicans — like there's been good years for Democrats — and things like that.

I think something fundamentally different is going on in our country. I think people do perceive that we're at a tipping point.

We're going to be deciding here in this next couple of elections, as to which direction we are going to go in. Are we going to go down that road we never traveled before and slide into a comfortable complacency and mediocrity and have the government take care more and more of our needs in this country and give up more and more of our freedoms, move further away from first principles, constitutional principles? America has never done that. And I don't think America is going to do that.

So, I think that's sustainable.

HANNITY: Why — expand on this. America is, we can say a crossroads, maybe a time for choosing. Everyone will quote Reagan and Goldwater. You say a tipping point that America is going to go one or two directions.

Explain what you think the two directions are.

THOMPSON: If we have more people on the receiving end of government —more people as the middle class becomes sucked in more and more to these entitlement programs, for example — then we're going to be in a place where it's going to be hard to go back. It's going to be hard to go back again. It's going to be hard to take away stuff. It's not impossible.

But we're — we have an opportunity to do something this year, starting this year in this country that has never been done before and that is go halfway to a welfare state and then turn around and go back. Because every country that I've ever studied that has gone down this road has gone on down it. And we're seeing it in Europe. We're seeing it in lower growth numbers. We're seeing in weakness. They can't pay for their own defense any more. That's one road.

HANNITY: Let's say we take that road. Predictable similar results is Europe? Predictable similar results as the decline of the former Soviet Union — to each according to his needs from each according to his ability — bankruptcy?

THOMPSON: We don't know. Because Europe is still developing. Look at what's happening in Greece. I mean, who would have predicted a year or two ago that Greece would find itself essentially bankrupt, you know, with its hand out, going around Europe. You know, the poor man of Europe with its hand out. Europe feeling like it's going to go bail them out because they're part of the EU and all that.

So, we don't know where all of that will lead. Just the bailing out of that one country in the EU might lead to other ramifications.

We don't know how high the tax rates can get there. We don't know how great the welfare state can be. We don't know to what extent they can pass law us. I mean, the French are passing laws and restricting free speech that I never thought I would see —

HANNITY: In our lifetime.

THOMPSON: In our lifetime, just as an example.

HANNITY: So, put your pundit hat on, your adviser hat on. I mean, you run Senate races, you ran for president. You had a pretty good run in your campaign. You had a lot of support. I know you would have liked to have gone further.

THOMPSON: And now that I'm out of it, I've become a lot smarter. I have all the answers to the questions and solutions.

HANNITY: But you say that half in jest, but you probably acquired a lot of wisdom in the course of these many campaigns.

THOMPSON: You would think so, wouldn't you?

HANNITY: Yes, I would hope so, Senator. I know you became a really good actor in "Law & Order." I mean, you were fantastic. But in all seriousness, I have my ideas. My ideas are simple, and I'm not re-inventing that we kind of like Reagan, he's my political icon.

THOMPSON: Of course, absolutely.

HANNITY: And I just believe, you know, you cut taxes, you unleash the entrepreneurial spirit, you create jobs, people spend money, everybody prospers, 21 million new jobs, you double revenues to the government, things go perfectly.

I want the Republican, new conservative Republican Party, to be that party of fiscal responsibility, lower taxes, strong national defense. Let's be energy independent — and I think they win.

Am I breaking it down? Am I too simplistic or is it that simple and easy?

THOMPSON: No, I think it is that simple and easy. Achieving it is not very simple and easy, but results that you will achieve from it are clear. And that is freedom and prosperity and strength.

HANNITY: Explain that you didn't get to this part of the question I was asking you earlier because I cut you off. Explain what we give up. Because we keep saying, all right, we're going to have this false security. Government — my grandparents didn't have health care, daycare, safety net when they came to America from Ireland at the turn of the last century, they had nothing.

My father grew up poor. He didn't have a lot. He was extraordinarily proud when I got hired by the Fox News Channel. And so the question, I guess, I ask you is: If we go down this security road — false security, I would call it — what do we give up? How do we give up liberty? What does that mean when you say that?

THOMPSON: Look at this health care bill. I mean, look at what's happening there. You're going to — you're not going to have the same relationship with your doctor if you can find one that you had before. Your choices are diminished. The things that you can do with your own money. Your tax dollars are taken away from you and spent for purposes —

HANNITY: So, you're less free.

THOMPSON: You're less free.

Look at these witnesses that come before Congress. Some of them are bad guys a lot of times. You know, I've interrogated my share of them, but whether or not, they are car makers, they're bankers, or whoever is in the hot seat. Some people are not in the hot seat. All have one thing in common, you know, they don't have what Ollie North had. They have one thing in common.

They want to please and appease their tormenters because they can't afford not to. They are so dependent on the government. They're so dependent on them getting together and writing some law that will disadvantage them, advantage their competitors or put them totally out of business.

HANNITY: All right. Senator, America clearly is at the crossroads in what you're saying. Thank you so much for coming. Thank you, Senator.

THOMPSON: Thank you very much.

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