This is a rush transcript from "Hannity," January 13, 2012. This copy may not be in its final form and may be updated.

SEAN HANNITY, HOST: We are now just a few short days away from the critical showdown in South Carolina that you can only see right here on the Fox News Channel, that's Monday night's Republican primary debate in Myrtle Beach. It will likely be the final proving ground for some presidential candidates who are looking to put an end to Mitt Romney's impressive win streak. And according to a brand new survey released today by a Rasmussen reports, the GOP field has some work to do in the Palmetto State because Governor Romney continues to lead. He's got 28 percent of the vote. Speaker Newt Gingrich placed a second with 21 percent followed by Senator Rick Santorum and Congressman Ron Paul.

And joining me now from Washington with a preview of Monday night's big debate, Fox News contributor, Dr. Charles Krauthammer. Sir, welcome back.

CHARLES KRAUTHAMMER, Fox NEWS CONTRIBUTOR: Happy to be here. It's a pleasure.

HANNITY: All right. We've got the Rasmussen report, we've got the Public Policy poll, that's a little closer, that's 29-24 Romney over Gingrich. Insider Advantage, it's only a two-point margin for Governor Romney, what do you make of the polls? What do you make of the state of the race and now important is Monday?

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    KRAUTHAMMER: Well, the Romney lead is shrunk. It was much higher than he was in the thirties about a week ago. It tells you that negative advertising works and he tells you as you said in the preview, is that he's getting it from all sides. I mean, he could be the only guy in history who is been accused of being a right-wing corporate raider who introduced socialized medicine in the Massachusetts. That's a first.


    And the real question for me is this. Does he have a good answer for the Bain question? It is obvious that it was going to come from Obama. They are going to use tens of millions of dollars in ads to hit him on that, they're going to have person after person, worker after worker who lost their job, it's going to be a teary story and they were going to hit him. This is in the fall. Now, it came a little early unexpectedly. And I must say, I'm surprised by how unprepared he has been. He gives a general answer, a kind of abstract answer, well, this is an attack on capitalism. Yes it is, but that is not effective enough. He has to get in there and he's got to explain exactly what he did, I don't mean in detail. I mean, exactly what his line of work was. How the economy needs it. How it helps to look after to go into failing companies and trying to save them by making them leaner and productive. That's essentially how it works. And he simply has to come up with an answer particularly in the debate on Monday night where he is going to have a little time to explain himself.

    HANNITY: Listen, and there were a couple of other stories, it wasn't only saving companies that were in deep financial trouble, but what we're talking about staples and we're talking about sports authority. They have created jobs. One of the big controversies though is how many jobs. He had said net-net-net, 100,000 jobs. That has been brought in dispute. If you had to give him advice, if you put you adviser hat on, what advice -- how would you advise him to answer these questions? What would you say is the best answer?

    KRAUTHAMMER: Number one. Never use the phrase net-net. It makes you sound like some cold-blooded accountant (INAUDIBLE).


    Number two, here's what I would do, a jujitsu on Obama and say, look, Obama and the government went in and tried to rescue GM and Chrysler. What did they do, they went in and they slimmed it down. A lot of workers lost their work. A lot of dealerships were closed. The Pontiac line and other lines were shut down. A lot of individual suffering. And that was the Democrats, that was the government. That was the people who supposedly are the ones who care about the workers in the middle class.

    But that is what you have to do when a business is about to go under and everyone is going to lose their job. You slim it down, you make it efficient and productive and then you save some of the jobs and then you grow it, so that later you add on to other jobs. Which is in fact what happened to some of the failing companies that the Bain Corporation invested in that initially were slimmed down and then ultimately added, wings added, affiliates, and added workers and new factories.

    HANNITY: You know, you're referring to the tone of the Republican primary, and we had Newt Gingrich on the show last night. I was asking him about it, and he said, look, I didn't want to the tone to go in this direction. But if I don't fight back, it's like going into a battle and I'm unilaterally disarming, and I might as well get out of the race, or I've got to fight back.

    You know, if you look at polls, Charles, and you've seen focus groups on this. People will say all the time, they don't like negative ads. Negative ads work. If they didn't work, then they wouldn't be used, right?

    KRAUTHAMMER: Well, but look, the reason that people got so upset with Newt, I'm talking about the Wall Street Journal, I'm talking about National Review --

    HANNITY: That's the Bain issue, yes.

    KRAUTHAMMER: -- is because it's not that he went negative. Everybody ultimately will do something negative. If he had run negative ads on Romneycare, all right? Socialized medicine. Here is a guy who says, he wants to go up against Obama, the major Obama weakness is Obamacare, how can you have him as a candidate, debate Obama on this and use it as an issue, it was a huge issue in 2010 where Republicans were successful, he is the guy who disarmed. Romney would be guy. If he would run ads like that, there wouldn't be the anger and disgust. That's a word that some people have used. And you wouldn't have people saying what exactly is he up to? You wouldn't have Giuliani saying, essentially, what the hell is Newt doing?

    HANNITY: All right. But let me ask you --

    KRAUTHAMMER: Instead he attacked him from something that most conservatives agree upon, that there is a row for private equity and capitalism, and he was attacking it rather broadly.

    HANNITY: Yes. And I also interviewed Rick Perry and he was using even, you know, a worse description, vulture capitalism, ethics thrown out the door, taking advantage of companies and need, etc. I agree with your point on that.

    Let me ask you, but there are also ads in fairness that have been run against Newt, they brutalized him with over $10, $12 million in ads in Iowa. Some of the things in those ads were factually inaccurate as even The Washington Post would acknowledge. So, I think it's gotten unfair. I am mixed mind. I don't like the tone. I would prefer the debate at a higher level on the one hand. On the other hand, Barack Obama we expect will have close to a billion dollars to throw at whoever the Republican nominee is. Isn't this a proving ground, an opportunity for them to vet these issues now and hopefully by the time the election comes, people will be rolling their eyes, that's old news.

    KRAUTHAMMER: I think so. It think actually, it could be an opportunity. It's a challenge and it's a moment that Romney is going to have to meet. I said on "Special Report," this is even going to be a poison or it's going to be an inoculation. And the question is, can Romney develop antibodies? In other words, can he give the case? Can he make the case? And that I don't know. And that we're going to have to see in South Carolina.

    HANNITY: Yes. I do and I do agree with you. He needs a really good answer Monday night. And we'll be in South Carolina and we'll be watching.

    KRAUTHAMMER: An answer that is succinct but also human and personal. It's not abstractions about the workings of the system, it isn't about net- net, it isn't about numbers, it's about humans. And I think he can explain it. In fact, the whole capitalist system is a system in which ultimately humans, the ordinary America, the ordinary worker has improved his condition. We are the wealthiest of society in history. As a result of two centuries of capitalism. And that is what it does often. But you've got to complain it not in generalities or as political theory but in a way that can be understood that is individual, and that is sort of human and humane.

    HANNITY: Did you see the poll this week that came out that there 19 percent more, in terms of percentage points, Americans now buy into the rich versus the poor argument because the president has been, you know, igniting this battle, this conflict. So, I don't think we'll going to hear the end of it Monday night but it certainly, it could be a start for a debate that I think will define the election? Do you agree with that?

    KRAUTHAMMER: I think it is. The Republicans had one narrative in 2010 and through most of the year of 2011, about debt, extravagance, overspending, growth of government. All of that, this assault on the individual. And Obama came up with a counter narrative about inequality, about the Plutocrats and about the sort of the robbing and stealing from the middle-class. That second narrative is succeeding and unfortunately, a lot of Republicans in this race are helping it to succeed. And I think it has got to change.

    HANNITY: All right. Great analysis as always. I appreciate you being with us.

    KRAUTHAMMER: It's a pleasure.

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