This is a rush transcript from "Hannity," July 18, 2011. This copy may not be in its final form and may be updated.


JACK LEW, OMB DIRECTOR: I think that if you look at where the parties are compared to discussions over the last decades, there are things that both sides are talking about doing that are very dramatic. I think there's still time to get something big done. The president has made it clear he wants to do something substantial.


SEAN HANNITY, HOST: Now, that was White House Budget Director Jack Lew talking about the ongoing debt negotiations in Washington. He says the president wants to do something, quote, "substantial." But this afternoon, we found out just how hollow that pledge really is.

Now today, the administration announced that if the Republicans cut cap and balance pledge were to pass the House and Senate, "President Crybaby" would veto this. Now, the GOP plan which is now gaining momentum, aggressively tackles America's fiscal crisis by making mandatory spending reductions that would reduce the deficit, cap government spending at 18 percent of the GDP and send to the states a balanced budget amendment to the U.S. Constitution.

Now, obviously, those measures would prevent this president from pursuing his reckless tax and spend agenda, which explains why he is opposed to it.

And joining me with his take on all of this, South Carolina Senator Lindsey Graham. Senator, how are you?

SEN. LINDSEY GRAHAM, R-S.C.: Good, thanks for having me.

HANNITY: Look, it is simple to me. This is the moment of truth. This election in 2010, the biggest midterm in 70 years. You know, I'll quote President Obama, we won, conservatives won. Cut, cap and balance, do you support it?

GRAHAM: Totally. I'm not going to vote to raise the debt ceiling unless we address what got us in debt to begin with. The president talks about a big deal. This is the real deal. Cuts never come in the near term but under this plan they would. You would cut the government beginning next year. Cap the deficit -- cap spending 10 years to wipe out the deficit and have a balanced budget amendment to the Constitution to provide discipline to the Congress. How many people believe that the Republican and Democratic Party, without some change in the way we do business, is ever going to balance the budget? So, the president wants to do big things, support a balanced budget amendment to the Constitution requiring all of us appeared to do what every American has to do, balance the budget.

HANNITY: All right. So, it's very simple to me, the president is demagoguing the issue, he's scaring seniors, he's playing class warfare. The president is not being honest. We are going to take in $200 billion in August. That's the revenues to the federal government. That pays for, now think about it, interest on the debt, which we have to pay so we are not going to go belly under. It pays for Social Security, no senior is going to be without the Social Security. Pays for Medicare, pays for Medicaid, pays for our military in every capacity and still has about 39 billion leftover. So, if worst comes to worst, why not just say, OK, we'll write a bill, we'll prioritize our spending.

GRAHAM: What Dick Morris said made sense to me. But here's what every Republican has to ask themselves. If the last election wasn't about the size and scope of the government, what was it about? It was about the size and scope of the government. And we won. We've got a chance here to cut, cap and balance, to keep the country from becoming Greece. I don't need a cover vote. I don't need to go home and say Obama raised the debt limit, I didn't. I want to be able to say the debt limit was raised in a way to keep the country from going bankrupt, to keep from becoming Greece over time. Cut, cap and balance is a reasonable approach. I'm not looking for a political solution. I'm looking for an economic solution. And to any Republican, you have to ask yourself this question, at the end of the day, did we change things in Washington?

HANNITY: Senator, if that's the goal, then this is a moment of truth that I think...

GRAHAM: It is.

HANNITY: .for the country. Because I -- we will become Greece and that's my greatest fear.

GRAHAM: We are going to be Greece.

HANNITY: We're going to be Greece. No doubt about it.

All right. I'm concerned about Senator McConnell's plan. I won't reveal the content. We had a long discussion. And to his credit, he didn't ask me to change my disagreement with him on his plan. But I'm concerned that there -- Senators DeMint, Rubio, Rand Paul, they are saying no way to the McConnell plan. But I'm concerned Democrats will support it. I don't think House Republicans will support it. Do you see the danger in having that as a quote, "last minute option" hanging out there?

GRAHAM: I think what we should do is take this fight to the American people. And challenge the president to be for something. He's for a big deal but he won't tell us what the big deal is. We put the ultimate big deal on the table, a balanced budget amendment to the Constitution that requires both parties to stop spending like drunken sailors. So, Senator McConnell is a good man. He's trying to find a political solution to what he perceives to be a political problem. The election wasn't about politics, it was about the future of our country. How can any Republican go back to their constituents and say, I raised the debt limit, $2 trillion additional borrowing but only cut the government by 1.5 trillion. No Republican can do that and survive, nor should they be able to.

HANNITY: All right. So, can I put you on the record as opposing the McConnell plan?

GRAHAM: As I understand it today, yes. At the end of the day, Sean, how can you raise the debt limit and not cut the government at least an equal amount and say, you live within the mandate of the 2010 election? But it is bigger than that. It's not about 2010. You and I are worried about August the 3rd, not August the 2nd. I don't want to wake up August the 3rd and have kicked the can down the road. Done nothing about the reason we borrow 40 cents on every dollar and every child in America is saddled with $48,000 of national debt the day they are born. I don't want to do that. I'm 56-years-old, I know we can do better. And the Republican Party has a chance to side with the American people. If we side with the American people, President Obama will give in and do a big deal.

HANNITY: You see, I agree with you. And I think -- I don't know if the Republicans know how much power they have here. I don't think he wants to go down in history.

GRAHAM: I don't either. He's got a chance to be a historic president for the good.

HANNITY: Well, and he's going to be pulled kicking and screaming into this deal. But I will say this, if the Republicans do capitulate, I think they will be primaried and I think a lot of them will rightfully be fired. And honestly, I will be as a conservative, I will feel that they have let us down. Would I be right in my feelings?

GRAHAM: If the election of -- the 2010 election was not about the size and scope of the government, what was it about? If we do not cease the moment and insist on reasonable changes to keep our country from becoming Greece and losing the American dream, we shouldn't be in power.

HANNITY: All right. Well said. Senator, thanks for being with us.

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