This is a rush transcript from "Hannity," April 16, 2010. This copy may not be in its final form and may be updated.

SEAN HANNITY, HOST: So, now the Tax Day is over, families all around the country must be breathing a collective sigh of relief today, right?

Well, thanks to President Obama's fiscal policies that's not exactly what is happening. In fact, an overwhelming majority of Americans believe their taxes will actually go up over the next year, and according to a brand new Gallup Poll, 63 percent expect to pay higher tacks in the next 12 months, 30 percent don't expect to see much a change, and a mere 4 percent think their taxes will go down.

So, what is fueling this pessimism? For one, news is breaking from Capitol Hill that the left's dreaded cap and tax plan is making a comeback as part of the president's spring offensive. Now, sources tell Reuters that a so-called compromised bill will be unveiled on April 26 by Senators John Kerry, Lindsey Graham, and Joe Liebermen. Now, if passed, cap and tax has the potential to hit the wallets of each and every American family on a daily basis.

And as we approach the 2010 midterm elections, its legislative battles like this that will no doubt determine the make-up of the next Congress. Joining me now with analysis is the former senior adviser to President George W. Bush, Fox News contributor, the one, the only, the architect, Karl Rove.

Welcome back, Mr. Rove. Good to see you. How are you?

KARL ROVE, FOX NEWS CONTRIBUTOR: Fabulous, Sean. How about you?

HANNITY: All right. Let's start with yesterday's Tax Day. A lot of angry Americans. we have the Bush tax cuts are expected to expire. We're going to have the debt tax comeback. You got a 5.4 percent surcharge to people that — the top percentage of taxpayers, the higher percentage. And then you got Medicare taxes going up 25 percent. Why wouldn't everybody understand their taxes are going up?

ROVE: Everybody does. And what's amazing to me is the wealthy (ph) and response in administration and Democrats like Pelosi and Reid in the last couple of days, trying to convince the American people, oh no, no, your tax is really going up. We've cut your taxes by 800 billion dollars. And it's amazing. Everybody knows you have cigarette taxes up, health care taxes up, taxes on drugs, taxes on medical devices, taxes on the insurance policies, taxes on investment.

And that's before we get to the expiration of the Bush tax cuts, and yet, somehow or another, this administration and these Democrats in Congress expect us to believe that, somehow, they're lessening our tax burden. Who are they kidding?

HANNITY: You were there for the Bush tax cuts. They expire at the end of this year. Why do you explain — how will that impact every single person now watching this telecast?

ROVE: Look, the debt tax goes back up. The child tax credit gets cut in half. Tax rates for everybody who pays income taxes go up with the biggest rate increases for the people at the bottom. We have the expiration of tax cuts on dividends and in capital gains which will have a direct impact on jobs. And you know what's amazing is the administration is taking the perspective if they simply continue an existing tax cut that in and of itself is a tax cut.

For example, part of what they're claiming is part of the 800 billion dollars in tax cuts is continuing the tax code as it now exists. That's not a tax cut if it's already in the tax code. It's a tax increase if you allow that to expire. That's exactly what's going to happen next year when all these provisions of the Bush tax cut expire and that is taxes are going to go up and that's a tax increase.

HANNITY: All right. Just to explain the people, so, on the federal tax income level, we're going to go up to 42 percent when the Bush tax cuts expire?

ROVE: It's going to go to nearly 40 percent. It's 39 and some change. Yes, 40 percent. But remember, at the bottom, the lowest bracket today is 10 percent. That goes to 15 percent when those tax cuts expire. Now, let's see if the administration comes out and lays out a definitive plan to keep a bunch of the Bush tax cuts in place. If so, good for them, but what they're going to do is they're going to allow that top rate to go up and because — they're building into the tax code things that are eventually going to grab a lot of people.

For example, in the health care bill, there's a 3.8 percent tax on investment income, capital gains and interest and dividends that you get from your investments. And initially, it applies only to people who make $200,000 a year or families who make $250,000 a year, but it's not indexed for inflation. So, each year as your wages get bigger over time, more and more people are going to get caught in this thing which is supposed to only apply to the rich.

We saw the same happening with the AMT, the Alternative Minimum Tax. It was passed in 1969, and literally, was supposed to apply to less than 10 people in America, ultra rich who are avoiding paying any tax. Today, the AMT applies to literally tens of millions of American households, and the only reason they don't have to pay the tax is every year, we pass what's called an AMT fix which puts off the tax.

HANNITY: All right. So, 40 percent federal tax, if you're in state like New York, add another 10 percent, so that's 50 percent of your income, then we're going to have higher —

ROVE: And don't forget social security and Medicare taxes. So, like in New York, you're going to be having top affected tax rate of 60 percent.

HANNITY: All right. So, then you got health care, we're going to pay higher taxes for health care. They're floating a value added national sales tax, then you might have property tax if you own a piece of property, then you might have, you know, county tax.

ROVE: Sales taxes.

HANNITY: Sales tax.

ROVE: Right.

HANNITY: All right. So, then, are we talking about 70 percent potentially of people's income going to the government if you live in a high tax state like New York or New Jersey?

ROVE: High tax include household, but even a more modest sort of middle class family in a high tax state could see their affected tax rates between income, property, state and local property, and sales taxes and so forth being approaching 50 percent. And look, Americans are right. You've seen these recent polls. One, there's a long standing poll done by the tax foundation. And there was just recently another poll done that asked people what's the maximum amount of money that people should pay in their income taxes? And most Americans, 75 percent of them in the latest poll say no more than 20 percent.

Already, we're at 35 and some change, and we're going to go next year if nothing happens different to nearly 40 percent, 39 and some change. So, Americans have every reason to be concerned about. Particularly, with this administration, which again, what's amazing to me is, look, it's one thing to raise our taxes.

It's another thing to try and make us pretend that our taxes are not going up. For the administration to engage in the duplicity and hypocrisy of the last 24 hours, you know, sending Larry Summers out to argue, oh, no, you're getting tax cuts. Look, the 250 billion dollars of what Nancy Pelosi said was a tax cut is what's called a premium tax credit under the new health care bill which is subsidies paid to health insurance companies. And they say that's really a tax cut for you.

HANNITY: So, now, there's going to be a referendum on this and that's coming in November. And this is what you do best, you analyze elections. You know every county, every district, every congressional district in the country. Now, Ed Rendell is suggesting that the problem for the Democrats is they've lost the messaging war. In other words, that is not the policies.

I find this a little amazing to believe though because the Democrats have both Houses of Congress, and we have the greatest orator as president we're told since Abraham Lincoln. So, I'm trying to understand how they blame us on the messaging war not the message.

ROVE: Yes. Look, they've got the best teleprompter in America and history. I'm not sure they've got the greatest orator. Look, I like Governor Rendell. You can't help but like him. But he is spinning, and he is spinning wildly. Look, they have dominated the messaging for the last 14 months particularly on health care. You go back to January, February, March of last year, people were in favor of the concept by 2-1, and they were opposed to it at the end by 38-60 on the average.

I mean, they have lost the messaging war because they have the wrong message. Politics today is like, you know, people are paying very in close and a tense attention to it. They're listening carefully to what the president and the Democrats in Congress are saying, and they don't like it.

HANNITY: All right. Last question.

ROVE: And that's why they face a problem.

HANNITY: I want a Karl Rove update where do you see as you look in your crystal ball, you look in November, you don't think the Republicans are there yet taking back the House or Senate. Where do you see them as of this day, April 16th?

ROVE: Yes. I see us at 48 in the Senate, maybe 49. Frankly, Tommy Thompson's decision not to run in Wisconsin is a blunt (ph) to Republicans seat. He had an excellent shot to pick it up. I'm inching up towards — I did my count last week, I'm at 35 in the House. I was thinking of a range of 30 to 35 and getting comfortable at 35. And, look, we got candidate recruitment and primaries. We got candidate — you know, filing deadlines until July, primaries until September. Now, I think we got to continue to monitor Senate races develop earlier than the House races, but I'm, today, saying the 35 in the House and room to grow.

HANNITY: You're getting into Hannity prediction land. So, I'm going to see — we'll be monitoring every time we have. Karl Rove, always good to see you.

ROVE: Thank you. Thanks, Sean.

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