This is a rush transcript from "Special Report," April 26, 2011. This copy may not be in its final form and may be updated.


ROBERT RECTOR, HERITAGE FOUNDATION: Wha t we see today is that about $1 in $7 out of the entire income in the economy are government entitlements, particularly Social Security, Medicare, and cash, food, housing, medical care for the poor.


JIM ANGLE, ANCHOR: Now we're going to get to that broader question in just a moment. But before that, we asked you, what is the best way to reduce the public worker pension and health care funding gap? 43 percent said eliminate pension plans in favor of 401(k)s, 42 percent said requiring workers to make larger contributions is the best way.

And we're back with the panel. The topic that you just heard Mr. Rector referring to there is that Americans are relying more than ever before on money handed out by the government. Figures from the bureau of economic advisors show that people are getting some $2.3 trillion annually in government benefits. In fact, government benefits now account for almost one-fifth of the nation's total personal income, while wages are only about half of all income, the lowest percentage since record keeping began in 1929.

Alright so we're back with the panel. Charles, what does this suggest to you about where we are? Some of this is recession related, unemployment, food stamps, but a lot of it is things that go on and on. And this is even before the baby-boomers retire.

CHARLES KRAUTHAMMER, SYNDICATED COLUMNIST: Well look, in '29 we were a younger country. We now have 10,000 boomers a day are retiring and will for 20 years. So it's a demographic, which is inexorable, no way to control it. And we are a society that is, of course, going to support the elderly and of course it's health care, which is an even greater expense.

And the reason is our medical technology. Ya know in the old days you died of pneumonia or heart attack. It's a terrible way to go but from a society perspective, it's cheap. Today you live into old age and we die of cancers and dementias, they are extremely expensive and very intensive type of care. That is also inexorable and there is no way anyone is going to reverse that. We welcome the medical advances.

But the costs are astronomical. And that's why we are looking at a cliff of these transfer payments, 18 percent now. They will only increase. And unless we find a way to deal with the health care issue, we're gonna go over a cliff. And that's why the Ryan proposal and the counterproposals that are being booted about are so important today.

ANGLE: Now Mara, we are Americans who are now getting an average of about $7,400 in government benefits, that's more than twice the inflation adjusted number from just 1990. So the trend that we're looking at here, I mean the government is already in deep trouble on debt, and we are looking at an inexorable rise.

MARA LIASSON, NATIONAL PUBLIC RADIO: Sure, we are talking about an aging population with fewer people to support them. What I thought was interesting about that online poll, the two solutions, which is make government workers pay more for their pensions or change them into 401(k)s, that's fine going forward.

But the problem that we're talking about is that current retirees, their pensions are underfunded. And a lot of these states have a legal obligation to pay them. We're not talking about going forward. What you can re-bargain or renegotiate with current public sector workers. We are talking about the pension obligations that are legal and underfunded.

ANGLE: So we are talking about two parallel things here, Bill. One, of course, is the problem the federal government faces with the increasing number of government benefits going to people and the problems with Medicare, Medicaid, Social Security, that sort of thing.

The other is, which Mara was referring to, which is at the state level, they've got $1.25 trillion unfunded liabilities, if you will. Some people say the unfunded liabilities are actually $3 trillion over the coming decades. That makes it pretty tough for governors to deal with.

BILL KRISTOL, EDITOR, THE WEEKLY STANDARD: Well it does. But actually the governors who are trying to deal with them are getting a lot of attention. That's why they are getting attention. That's why what Scott Walker does in Wisconsin, what Chris Christie does in New Jersey is a national issue.

Because everyone has the sense -- two senses -- one, it's likely you're gonna have to deal with it in your own state to some degree, and secondly, it's the flipside to federal entitlement program. At the end of the day we are spending a lot of money, a lot of it legitimately on the elderly, basically for support, Social Security and for health care. And some of that is entitlement money and some of that is pension and health benefit money from state and local governments in many cases.

And we are -- more and more people are getting older and people are living longer. And that's great that they're living longer. But if you have a an age at which Social Security begins at 65 and the average person dies at 70 or 72 that's very different from Social Security beginning at 65 and people living until 85 or 90.

And obviously, as Charles said, the health care situation's terribly different, which is a good. I mean, this is a problem of prosperity in a sense and of progress. But you need to adjust the policies. And we've resisted, that's the big story of the last 10, 20, even 30 years is that no one could adjust the policies. No one could touch entitlements, no one could touch pensions, no one could touch health care costs going up, no one could touch health care benefits. And now we're going to have to deal with them.

ANGLE: Well, and the interesting thing is a lot of people don't want to have to deal with it. Now, the problem is we pretty much have a bipartisan consensus in this country that you don't take benefits away from people who are already receiving them. And that's the difficulty that we now face.

That's all time we have for this panel, but stay tuned for a special look at how President Bush is honoring America's wounded warriors.

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