This is a rush transcript from "Hannity," June 29, 2010. This copy may not be in its final form and may be updated.

SEAN HANNITY, HOST: CNBC's Rick Santelli, viewed as many as the inspiration for the Tea Party movement, again voiced the frustrations of most Americans yesterday when he appeared on air and declared this:


RICK SANTELLI, CNBC: I want the government to stop spending.


SANTELLI: Stop spending, stop spending, stop spending. Stop spending! That's what we want. Stop spending!


HANNITY: Stop spending. Now I don't think the Democrats are listening to Santelli or the rest of the country, for that matter, because they packed the Homeland Security spending bill with pork - $69.15 million of it, to be exact.

And get this: Senate Democrats haven't even had the chance to earmark this bill yet. Just wait until they get their greedy hands on it.

And meanwhile, in another example of the Obama administration's so-called transparency, it turns out that political director Patrick Gaspard received nearly $40,000 from the SCIU while he was working at the White House.

Yes, Gaspard used to be the political director for the SCIU and this was carry-over pay, but somehow he forgot to declare it. You know how easy 40 grand is to forget.

And joining me now with analysis, former advisor to George W. Bush, Fox News contributor, the one and only, Karl Rove.

Karl, I know you often forget $40,000 that you make. It's an honest mistake, right?

KARL ROVE, FOX NEWS CONTRIBUTOR: It's pocket change apparently to these people. I mean, Geithner couldn't pay his taxes and Gaspard can't remember that he's due some money. So I guess it just runs in the White House and the administration.

HANNITY: All right, first of all, you know, Santelli is interesting.

Mr. President, are you listening? You know, stop spending. Stop spending.

It seems that the country is screaming the same thing and there's a tone- deafness in Washington.

ROVE: Yes. You know, a Gallup came out this week. Since 2000 they've asked the question, what do you think problem is the country will face 25 years from now? So it's sort of forcing people to think about the big problem ahead. For the first time since they began asking that question, this year the answer is the deficit by a wide margin as well.

And that's indicative of all the polling we've seen over the last year. People's concern about the spending and the deficits and the debt and the out-of-control government have been growing and growing and growing. And it's one of the key drivers in the 2010 election.

HANNITY: All right. But the president is saying, you know what, the economy is doing just great. He said the economy is strengthening. We're heading into a recovery. That's what he's saying.

ROVE: Yes. Well, but you know, there's an interesting memo out today from Resurgent Republic, a group in - that I helped encourage be organized a year ago. It did polls in - target congressional districts, priority vulnerable Democrat districts in Iowa, Ohio, New Jersey, Arkansas and Florida, and released the findings today.

They had a very interesting finding which is that the independents in the focus group think and acted just like the Tea Party members. This is why the Democrats are in trouble.

Here's some of the words that popped up in the focus group: Reckless, out-of-control spending, unnecessary spending, unhelpful. They are dubious about the stimulus. They said the problem that we face as a country is the spending, not the revenue. That is to say we're spending too much, not taxing too little.

And what was interesting was this agreement between the independents and the Tea Party members. This is what's driving the ballot and the Democrats, as a result, in a big trouble in these key districts.

Last week NPR had a poll in which they said the difference on the generic ballot between the two parties in the 30 most vulnerable Democrat held districts today is a nine-point advantage to the Republicans. That would indicate that the Republicans are likely to sweep most if not virtually all of those districts this fall.

HANNITY: All right. The president and vice president kicked off the summer of recovery tour of theirs which is what they are calling it. Joe Biden was predicting back in April, hey, listen, we're going to add 500,000 jobs each and every month. We're on a pretty good roll here. That was back in April.

And now he was saying just a few weeks ago, you know, that hey, this - we are going on a recovery tour. But then in a more private moment, campaigning for Russ Feingold in Wisconsin, he says we're never going to recover the eight million jobs that we lost.

So is it that they know the truth and they're not willing to tell the American people the truth?

ROVE: You know I don't know. I think - I want to give him the benefit of the doubt. But remember it was Jared Bernstein, Biden's economic adviser, who've signed that paper with Christine Romer on January 9th, 2009 that said if we do nothing, if we don't spend a single dime unemployment will go over nine percent and persistent in nine percent well into 2010.

We passed $862 billion worth of spending and we got the performance of the economy that they said we would get if we did nothing. And we did their something and their something is going to cost us nearly a trillion too in principle and interest over the next 10 years.

And - so I - look, who knows what Joe Biden thinks. I mean, you know, he says one thing one day and another thing the next day. It's sort of entertaining to watch. But I would remind you it's his economic guy who said if we don't do this, and we don't pass this big spending bill, this big stimulus bill, we're going to have the economic performance that, frankly, we've ended up with.

HANNITY: Yes, I also thought it was pretty mean spirited. He goes to Wisconsin, he's hanging out with this guy at a custard shop, the manager, and, you know, calls him a smart-ass because the guy said, can you lower my taxes?

You know, it doesn't connect to me. It doesn't seem like they understand what their role is. To be public servants. That seems to be missing.

ROVE: Yes.

HANNITY: And there's a certain arrogance that I wouldn't expect to see from the vice president of the United States.

ROVE: Yes. Well, being thin-skinned. I mean he's bantering in the custard shop and the guy says lower my taxes, and the vice president gets prickly about it.

Look, these people are arrogant. And when you're arrogant and you think you know it all and somebody challenges you, the reaction is to - you know, flail back. And that's exactly what we're seeing.

And, look, this thing about the stimulus bill, what gets me is they're on a - they're drawing attention to, quote, "shovel-ready projects." Let's remember, of the total $862 billion stimulus bill - remember it's supposed to be $787, but in February they came out and said whoops, we made a little mistake. $75 billion more than we thought it would cost, a nine percent error in estimating the cost of this.

But of the $862 billion, four percent - four percent - is for highways, bridges and mass transit. And they're talking about shovel-ready projects, they try and leave the impression this is all about rebuilding our infrastructure. They go $5 billion in there for obesity counseling and smoking cessations programs.

This thing is a bundle of stupid spending projects. It is not a stimulus bill.

HANNITY: What do you make of Bill Clinton? Bill Clinton came out and said this is what we ought to be doing on the oil spill. Number one, we ought to be looking to stop the spill. Secondly, we ought to be preventing it from getting ashore.

Third, you know, he goes through a list of priorities. You know, there'll be plenty of time for blaming and emoting later. It seemed to be a direct shot, I thought, at the president. And secondly, you know, Bill Clinton now came - and is supporting Michael Bennett - Michael Bennett's primary challenger in Colorado, this guy Romanoff.

Anything going on in that dynamic in your mind?

ROVE: Well, you know, at first I thought when Clinton came out and sort of gave his prescriptions on how to deal with the Gulf oil spill that this was just Clinton being - you know, it's impossible for Clinton not to give advice on what he would be doing. And that's fine, I mean, it's an interesting insight into the mind of a former president.

But when he endorsed Andrew Romanoff, I took it as one of two things. Either a direct shot at the Obama White House or it is an attempt for him - for President Clinton to make himself more relevant by saying, in essence, to the White House in order to be effective for you I got to be seen as somewhat independent.

But in either instance it was a pretty extraordinary thing and a big boost to Andrew Romanoff's campaign in Colorado.

HANNITY: All right. Last question. I want to know what you think about the Blagojevich trial because we now have a union official on record that's saying Barack Obama personally told him that he wanted Valerie Jarrett and the union leader reported back that he was going to bring that to Blagojevich.

You got the Blago judge urging both sides in this case not to call Tony Rezko - Rezko and the Obamas buy adjacent properties on the same day, Obamas pay a lower than asking price, Rezko pays asking price. He sells off a portion of his land to Obama later rendering his property unbuildable, big bundler, big fundraiser for the Obamas.

Is there a cloud hovering above the White House involving this case?

ROVE: Well, not too big a cloud. But we have been misled, haven't we? I mean we were - it wasn't the impression left that the president was disengaged from this process and it turns out that the president-elect picked up the phone and called a union functionary in the state in order to have an intermediary, a cut-out deal with Governor Blagojevich. Much like they used Bill Clinton to deal with Joe Sestak. I mean this - the president's involvement in this was more than we've been led to believe.

Now I don't understand this direction from the judge about not calling Rezko. I mean what is he afraid of here? Is he afraid of somehow imperiling some future prosecution of Rezko? Does he consider it not to be relevant?

I mean, you know, it strikes me that this is a - that this was an odd instruction, and frankly (INAUDIBLE). I think Rezko is in the middle of this. And we need to know what kind of connections he had with Blagojevich.

And you touched on it earlier. I mean Blagojevich and - excuse me, Rezko and President Obama had an inappropriate financial transaction that the president-elect as a candidate tried to keep hidden from the American people.

And he was in bed with this stinky guy. And Rezko is his money guy, his fundraiser and his go-to guy, and paid him - you know, gave him the special sweetheart deal on the land to make his - make the president's house more attractive.

HANNITY: One other thing to watch on this. It's going to be interesting because I think the judge made a miss take. He may be setting up grounds for appeal, I think, for Blagojevich should he be found guilty by denying Blagojevich the defense in this case, access to the FBI interview of the president when he was then president-elect in December of 2008.

It's pretty interesting.

ROVE: Yes. Yes. Hey, could we go back to Patrick Gaspard for just one second?

HANNITY: Yes, final thought.

ROVE: You know what office he occupies in the West Wing, what that office traditionally has held before? Normally the political director is over at the old executive office building across West Executive Drive from the White House and not in the West Wing.

They put Gaspard, however, in the West Wing and tossed out the personnel director, the guy in charge of appointments, the guy in charge of vetting all these presidential nominations and appointees.

Maybe that says something why they ended up passing through Daschle and Geithner and all the rest of these people who didn't pay their taxes because they were so focused on moving this political guy into the White House and kicking the guy in charge of making the appointments, vetting the people who are going to be filling these high level appointments in the Cabinet, the subcabinet in the White House.

HANNITY: All right, Karl, 126 days out. I'm getting - I'm getting ready for the Rove prediction on September 1st, well, maybe right after Labor Day, how is that?

ROVE: There we go. Absolutely.

HANNITY: All right, thanks Karl. Appreciate you being with us.

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