This is a rush transcript from "Special Report," January 31, 2011. This copy may not be in its final form and may be updated.


ALAN WHITE, SOUTH CAROLINA ATTORNEY GENERAL: The commerce clause was intended to allow Congress to regulate ec onomic activity. And just like the judge stated earlier that this is basically regulating non-economic activity. And if the federal government can regulate something you're not doing then that will broaden the powers beyond what our framers ever possibly intended it to be.

SEN. DICK DURBIN, D-ILL., SENATE MAJORITY WHIP: It is like early in the baseball season, teams are winning and losing. But there's gonna be a world series on this, and it's gonna be at the U.S. Supreme Court. And that's where the final decision is going to be made.


BRET BAIER, ANCHOR: 26 states around the country, and there you see all of the states involved in this lawsuit today. A federal judge ruled unconstitutional, the health care law. Judge Roger Vinson. This is in part his ruling. Quote, "Congress exceeded the bounds of its authority in passing the act with the individual mandate." This is of course to purchase healthcare, or health insurance, rather. The principle dispute has been about how Congress chose to exercise that power here. "Because the individual mandate is unconstitutional and not severable, the entire act must be declared void."

A quick reaction from the White House on a blog. Stephanie Cutter saying, quote, "We don't believe this kind of judicial activism will be upheld and we are confident that the Affordable Care Act will ultimately be declared constitutional by the courts." The Department of Justice is going to appeal today's Florida district judge ruling.

What about all of this? Let's bring in our panel, Bill Kristol, editor of The Weekly Standard. Erin Billings, deputy editor of Roll Call and syndicated columnist Charles Krauthammer. A number of these rulings, this is the second major ruling, Erin, to rule the individual mandate unconstitutional. It's on its way to the Supreme Court. How big of a deal is this?

ERIN BILLINGS, ROLL CALL: I think every time we get a ruling of this kind, it's a big deal. There were 26 states' attorneys general that signed on to this, so it was significant.

But look, the political significance is even greater. This is giving Republicans on the hill new momentum, fresh momentum. The Senate Republicans want to take up the repeal bill that was passed in the House. Obviously, the Democrats still control the Senate. They know they're not gonna get it through. But this gives them fresh momentum to begin the conversation again, try to force that vote and try to put the Democrats on defense. And they're delighted.

BAIER: In fact Senator Dick Durbin apparently, is going to chair a judiciary committee hearing about the constitutionality of the healthcare law.

BILLINGS: That's right.

BAIER: So Democrats are building their defense.

BILLINGS: Whose constitutionality is it? It's really in the eye of the beholder. But Senator Durbin did have it right, the ultimate arbiter of this is going to be the U.S. Supreme Court. And what I'm interested in is the timing. When does that happen? We're heading into 2012.

BILL KRISTOL, THE WEEKLY STANDARD: This is where I think Senator Durbin's comment was very revealing and very revealing of a liberal Democrat. They'd like everything solved through the courts and they have gotten their way for 34 years. The ultimate arbiter is not going to be the Supreme Court. The ultimate arbiter of this is going to be the American people voting in 2012. Because even if...I mean ultimately this is going to be a political decision, and it should be a political decision. Though obviously the courts should rule those things unconstitutional that are unconstitutional. There are ways you could redesign Obamacare to be constitutional, and I think conservatives would still be opposed to it. So, it's going to be decided by the public in 2012.

What these decisions guarantee is Republicans will be able to go to the country, Republican Senate candidates and Republican presidential candidates and say this is not a closed matter. The Obama administration strategy has been to say, "Oh c'mon, you want to re-raise this issue of Obamacare? That is settled. That's like why don't you re-raise Medicare or Social Security or something. Get, get, get, let's get beyond that."

Didn't President Obama say we don't want to re-litigate these things? These decisions make it impossible, I think, to say this is not an open question. And I think it is therefore, going to be legitimate and incumbent upon Republican candidates in 2012 to say to the public this is your chance to decide. Obamacare, yes or no. It's an open question. It's constitutionality in question, it's wisdom is in question. Let's have a referendum on this in 2012.

BAIER: Charles, this is a big case. However, two other cases, judges sided with the administration. The U.S. Supreme Court eventually is going to take this up. They could dig down and pull up the issue now. If they wanted to.

CHARLES KRAUTHAMMER, SYNDICATED COLUMNIST: I think it's likely they will let it run its course for a couple of years.

BAIER: Play out?

KRAUTHAMMER: And allow some of the appeals courts to weigh in. But I think this is a significant event. And I'm not sure it's only gonna be decided by elections. I think this actually could be thrown out by the Supreme Court. And I think what happened today is significant. It's not just that it's the second decision that throws it out. It isn't only that it was a big case brought by a majority of the sovereign states. It isn't only that it was a ruling that tossed out the entire healthcare act. It's also that it's happening in a change in the country sort of ideological zeitgeist, which is after 80 years we've had inexorable expansion of the federal government with people sort of accepting the New Deal and The Great Society, et cetera, et cetera, with arguments about the cost and effectiveness but not about the constitutionality.

In the last couple of years especially with this explosion of the hyper-liberalism, coming out of the Obama administration, Obamacare, regulating energy, regulating all of these other things, taking over companies, there's been a pushback.

There's been a change I think in the mood. It is actually a serious argument now as it wasn't ten years ago to say we're exceeding the bounds of what our country was intended to do with the federal government.

And I think it's the mood of this new constitutionalism if you want to call it that in which a Supreme Court overrules so that if it overturns Obamacare it will not be seen as some sort of radical reactionary, anti-New Deal action but something in tune with the rise of this new constitutionalism in the country. I think there is a change in atmosphere. And I think it is now rather possible that it will be tossed out in the courts.

BAIER: And quickly, this ruling is a bit different in that it said that the individual mandate was not severable. In other words, you couldn't just rule on that. The entire act must be thrown out. That is a bit of politics. If you remember the Senate, they took out the severable, severability action because they want to keep everybody on board with all these individual deals. By taking that out, they could pass the whole bill. And this judge says this is the reason to throw the act out.

KRAUTHAMMER: If the Supreme Court wanted to be Solomonic and divide the baby in half it might say individual mandate in and of itself unconstitutional. It tosses it out. But it says, well, were not gonna rule on the rest of the act. Here it is. No individual mandate. You work out a new bill or you throw it out on your own. So you could end up with a middle ground of sorts.

BAIER: Last word, Erin, 23 Democrats in the Senate are up for reelection in 2012. This issue, they're going to be voting on it, likely the Republican version. It's politically a problem.

BILLINGS: Well, you know, certainly Republicans are going to do their very best to make the case that this healthcare law is flawed and that these Democrats are responsible as they build their case for 2012.

But look, they will try to make beyond repeal, though, they're going to try to take it apart piecemeal and they're going to attack those very unpopular items like the mandate and try to force Democrats to vote no.

BAIER: Next up, we talk about the situation in Egypt. What do you think of the way the Obama administration has handled it so far? Vote in the online poll, FoxNews.com/specialreport.



UNIDENTIFIED MALE: This does not work. I am calling upon all the Egyptians and all the provinces to go on the streets.

ROBERT GIBBS, WHITE HOUSE PRESS SECRETARY: We are calling for a change in the way the country works. I don't think people seeking greater freedom are looking for somebody else to pick what and how that change looks like.

PHARES: The Muslim Brotherhood is the mother ship for jihadi ideologies and thinking, and therefore one can say that today's Al-Qaeda and today's many other jihadists are offshoots of the Muslim Brotherhood.


BAIER: Just a few hours from now in Cairo hundreds of thousands of protestors are expected to storm the streets. They are unified in message at least. They want Egyptian President Hosni Mubarak out. Mubarak is trying to keep control of the situation.

Meantime former U.N. watchdog chief Mohamed ElBaradei has come out of house arrest. He is getting supported by all elements. Among those backing him is the Muslim Brotherhood, the outlawed Islamist movement stepping up its involvement in this protest. What about this, what's the fallout? We're back with our panel. Charles?

KRAUTHAMMER: Look, everybody would like to have a democratic outcome, but you to be a child to believe that it is inevitable outcome of this revolution. You have to be a wild-eyed optimist to believe that it's even the most likely outcome.

People say well the revolution is broad-based. Of course it is. So was the French and Russian and Iranian. We saw in the Iranian revolution, the Shah was always opposed by the Mullahs. The revolution succeeded when the merchants came against him and the students and the housewives and the secularists. And then who ended up in charge? Who hijacked the revolution? The most disciplined, ideologically united, ruthless element, the Islamists. That's the danger in Egypt.

And that's why it's important there will be a transition that is not out of control. What we have to see to happen or to help to happen is that the military, which is a respected institution, stays in control. It doesn't matter if it's Mubarak, likely not him, or Suleiman or another that...

UNIDENTIFIED MALE: The vice president.

KRAUTHAMMER: ...or that the army will trust. But that the army becomes the guardian of the state. It arranges for six months, eight months preparation for an open fair election which will allow the Democrats in Egypt who are now unorganized, disorganized and disunited to be able to put up opposition against the Muslim Brotherhood, who are ruthless, organized, and ready.

BAIER: Erin, the Obama administration has had a bit of messaging evolution over the past 48 hours or so since the beginning.

BILLINGS: I think obviously the chaos and crisis has evolved as well. I don't know if they knew exactly what was going to happen, how this was going to play out. I don't think they wanted to immediately throw Mubarak under the bus until they saw where this was going. I think now that they are getting a better sense, ya know, of how deep the unrest is, how widespread the discontent is. I think now that's why we're seeing them change their tune ever so slightly, they're clearly being very careful and very measured.

But you have seen that over the last three or four days the administration now talking about a transition, free and fair elections, moving toward a democracy. Not saying Mubarak needs to go but you can read the tea leaves here.

BAIER: Bill, is tomorrow, or actually today Egypt time the real test for Mubarak?

BAIER: It could be. And I think he's going to be gone. And I think the administration now expects him to go and is, I hope, privately urging him to go. Tomorrow there will be a million people in the streets of Cairo. And they are not storming the streets, ya know, they're peaceably assembling.

A good friend of mine who served in the Bush administration, who's a very hardheaded person talked with a friend in Egypt who has worked for the U.S., is a friend of the U.S., who said it's the most moving moment, in his history, as an Egyptian. He brought his son out to the streets to see Egyptians peaceably assembling trying to free themselves from this dictator who was at one point was a somewhat benevolent dictator and has become less and less so over the years.

Now that doesn't mean that these people will necessarily control everything but it's a reason to get rid of Mubarak now. The reason the Shah brought everything down with him is he hung on for what? 13 months after the demonstrations began? He in a way, he made himself the regime, the army was wrapped up with the Shah. When the Shah finally left, the whole thing crumbled and Khomeini was able to come back and seize power. The best chance for the kind of peaceful transition Charles is talking about is to get rid of Mubarak fast, have a transition government, promise the people free and fair elections, help them behind the scenes as well as publicly encourage them to organize themselves. There is a lot we can do to help make this a better outcome. I'm worried about the fatalism among a lot of the people here.

BAIER: You are not concerned about the Muslim Brotherhood?

BAIER: I am concerned, but the way to be concerned is not to wish they weren't there or to wish that Mubarak was in charge the way he was ten years ago. The way to be concerned is to do what we've done in other circumstances. President Reagan did this and in the Philippines, in South Korea and we did this in the late 40s in various countries in Europe. Help the democratic forces prevail. It's not going to be Mubarak.

BAIER: That is it for this panel, not it for this topic, I'm sure. But stay tuned for social media 101.

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