This is a rush transcript from "Hannity," July 12, 2010. This copy may not be in its final form and may be updated.

SEAN HANNITY, HOST: The Obama administration's decision to file suit against the state of Arizona over its immigration law has sparked a fierce backlash among several state governors, now many of them Democrats. And their anger boiled over at this weekend's National Governor's Association.

Now Tennessee Democrat Phil Bredesen seemed to speak for the group, saying, quote, "Universally, the governors are saying we've got to talk about jobs. And then all of a sudden we have immigration going on. It is such a toxic subject, such an important time for Democrats."

Now Colorado Democratic Governor Bill Ritter raised concern that the Justice Department's lawsuit may hurt Democrats in the November elections. Now he told The New York Times, quote, "I might have chosen both a different tack in a different time. This is an issue that divides us politically. And I'm hopeful that their strategy doesn't do that in a way that it makes it more difficult for candidates to get elected, particularly in the west."

But none of these concerns are stopping the administration. Attorney General Eric Holder, he signaled over the weekend that he's open to filing another lawsuit against the state of Arizona. Now the current suit does not focus on the alleged racial profiling aspects of the Arizona law. But hey, maybe the next one will.


ERIC HOLDER, ATTORNEY GENERAL: It doesn't mean that if the law, for whatever reason, happened to go into effect that six months from now, a year from now we might not look at the impact the law has had and whether or not - see whether there has been that racial profiling impact. If that was the case we would have the tools and we would bring suit on that basis.


HANNITY: All right, and joining me now with analysis is the former governor of the great state of Alaska, Fox News contributor, Sarah Palin.

Governor, welcome back.

SARAH PALIN, FORMER ALASKA GOVERNOR: Hey, thank you so much, Sean. Great to be with you.

HANNITY: You know, the funny thing to me is, the entire argument over - against the Arizona immigration law dealt with the idea that you can't bring your kids into an ice cream shop and not be asked where are your papers? That was the entire argument that they were making.

They filed the lawsuit. The lawsuit doesn't mention that. Do you think it's because of legal grounds?

PALIN: Well, I think that's very unfortunate that that rhetoric was used to scare people off from the support that Governor Brewer and the Arizona law deserved to have. Because there was never racial profiling in the bill to start with.

Arizona was very cognizant of the threat that perhaps they would see that - and the accusation that there was racial profiling allowance in that bill so they were extra careful to make sure that it wasn't in there.

So now to hear the feds say that they are looking at maybe filing a second suit depending on how the law is implemented and the second suit would prohibit racial profiling, that's just more rhetoric.

It's more of an attempt to get people divided and to get people shying away from supporting this obvious common sense bill that was necessary in Arizona. It's going to be necessary in other states, too.

HANNITY: David Axelrod said this weekend, and he said, quote, "No administration has been tougher on enforcement as it relates to illegal immigration." Your reaction?

PALIN: That's absolute - that's bogus. I mean just look at the budget and you're going to see that money speaks louder than words. They have decreased funding for Border Patrol and they have not planned for extension of the fence.

And that's what we have to do first is secure the border. Physically secure it. And except for the footage, the distance that has already been planned for, President Obama hasn't planned for expending that.

So, no, you know, their actions are speaking louder than Axelrod's words.

HANNITY: All right, let me - because all of this is now converging. Obviously, they are willing to go at odds with the American people on immigration, on the war on terror, on energy independence. So - and on the stimulus and on debt and deficits, and we'll go into these in great specificity.

But bigger picture, as we look at - we're 113 days out of the election. It was interesting for me this weekend - and we'll get into this in more detail. Robert Gibbs suggesting that he thinks well, there's a lot of competitive races out there. Basically suggesting that the administration is acknowledging that they made - by the way, a plane just took off behind you. That they may lose the House.

PALIN: Probably Todd.

HANNITY: Yes, probably Todd. Hi, Todd.

But they may lose the House of Representatives. I argue that that is probably a strategy by the Democrats to raise expectations to the point where anything short of taking over the House and Senate they will be able to try and spin as a defeat for Republicans. Your thoughts?

PALIN: Yes. I agree that that probably is the strategy. But, you know, I hope that in this case, Gibbs' words do come true because we are on the path towards insolvency. We are not addressing the main problems that the American people are expecting their federal government to assist with.

And that is, allowing the private sector to create the jobs, securing our borders, making sure that we have health care that is affordable, not a government program that's been shoved down our throats.

All those problems that are surfacing and people are getting ticked off at the federal government and the Obama administration and they want these things addressed.

In this case, yes, I hope what Gibbs is spewing isn't just that campaign strategy to raise expectations. I hope it comes true.

HANNITY: All right, but 50 percent - and we're going to stay on the economy for just a second. Fifty percent, Rasmussen poll now rate Obama's economic performance as poor. He only has 38 percent support among independents in a recent poll.

And, you know, if you look at some of these other numbers, even the Carville/Greenberg poll, they're not looking good for the president.

So the president set up a debt commission. All right. Erskine Bowles, Senator Simpson, they're on this debt commission. I believe this is a commission that is designed to provide cover in the end so that those in Washington can raise everybody's taxes.

Do you think Republicans will fall for that? Is that a danger? Thomas Saul thinks it is.

PALIN: Republicans had better not fall for that and so often that is why a commission or a task force is set up by the CEO of a state or in this case our nation. President Obama is going to have an easy out if this commission comes forth with a proposal to increase taxes or implement something that is taking away from our families and our small businesses.

And that's going to be unfortunate. It allows him cover.

A CEO - again in this case a president - who doesn't have a backbone and can stand up and say, no, let's get back to our time-tested truths and understand that the free market is going to be able to work best and create jobs, allow the job creators to keep more of what they earn and produce, and then hire more people? That's how we're going to roll this economy along.

Unless a president has a backbone and understands that the principles of the free market work best than - yes, I assume that he will take that cover that could be provided him from a debt commission and he'll, you know, kind of point fingers and say they told me to do it, they're the experts.

HANNITY: You know, Governor, you have been one of the strongest, most outspoken members in support of the Tea Party Movement. I've met a lot of members, organizers in the Tea Party Movement. I've been at some of their rallies. I've witnessed it up close and personal.

Members of the NAACP are going to vote tomorrow on a resolution that condemns what the group calls - the NAACP - explicitly racist behavior by supporters of the Tea Party Movement.

Wanted to get your reaction to that.

PALIN: Yes. This is some typical divisive politics that is so absolutely unnecessary, especially at this time of turmoil within our country. Turmoil when you consider the state of the economy and so many other challenges that we are facing. This is just so unnecessary.

No, the Tea Party Movement is a beautiful movement, full of diverse people, diverse backgrounds. Folks of all walks of life who, for the most part, happen to oppose President Obama's policies. Not the color of his skin. They don't care that he's half white or half black. It has nothing to do with the person's skin tone -

HANNITY: All right.

PALIN: What their politics or their policies are about.

HANNITY: And look, Andrew Breitbart offered $100,000 for anybody that can produce a video showing that members of Congress, that there were racial epithets that were hurled at them, and nobody was able to collect $100,000.

It seems to me, if we go back in the history there was a 1998 Democratic Party Missouri radio ad that said if you elect Republicans, black churches will burn. The NAACP ran that controversial James Byrd ad.

Do you think this has to do with the fact Democrats are down, 113 days out of the election? Is this to help energize the base of the Democratic Party?

PALIN: Well, it's very unfortunate that they are taking this tactic because it's a false accusation that Tea Party Americans are racist. Any good American hates racism. We don't stand for it. It is unacceptable.

So to be called a racist, yes, those over there on the left who are opposing that good message of Tea Party Americans are using this racism accusation in order to keep people away from not only the movement, but keeping them - keeping a wall built between what the message actually is and the American public that is today receiving that message very well.

False accusation, very unfortunate and again very, very unnecessary. And the president and his wife - you know, the first lady spoke at NAACP so recently, they have power in their words. They could repudiate what it is that this group is saying and they could set the record straight.

And they could - they could correct what this false accusation is that the Tea Party America, that movement, is racist.

HANNITY: And the first lady spoke there today in the lead up to the resolution tomorrow.

PALIN: Right.

HANNITY: And we'll have a lot more on that on tomorrow's program.

Governor, stay right there. We've got a lot more with Governor Palin coming up after the break.


HANNITY: All right, the Gulf Coast has been under assault for the past 84 days as a result of the largest oil spill disaster in American history. And throughout much of the crisis, the president has claimed that he's closely monitoring the situation on the ground.

Take a look.


PRESIDENT BARACK OBAMA, MAY 2: I'm not going to rest and none of the gentlemen and women who are here are going to rest or be satisfied until the leak is stopped at the source.

OBAMA, MAY 26: Let me reiterate. We will not rest until this well is shut. The environment is repaired and the cleanup is complete.

OBAMA, MAY 27: My job is to get this fixed. The federal government is fully engaged and I'm fully engaged.

OBAMA, MAY 28: I ultimately take responsibility for solving this crisis. I'm the president and the buck stops with me.


HANNITY: All right, but rest, relaxation and vacations have consumed the president's schedule in recent months. Now this week he'll travel to Maine for his third vacation since the spill began. And when he's not on a holiday, well, the president is on the golf course.

White House pool reports indicate that he's hit the links nearly a dozen times since day one of the Deepwater Horizon incident. Now that includes a golf outing this past weekend as well. But of course the White House wants to you believe that all of this is a good thing.

Take a look.


BILL BURTON, DEPUTY WHITE HOUSE PRESS SECRETARY: All the different issues that the president is dealing with, I think that a little bit of time to himself on Father's Day weekend probably does us all good as American citizens that our president has taken that time.


HANNITY: I wish I had this much vacation. The arrogance, pretty amazing.

And we continue now with former Alaska governor and Fox News contributor, Governor Palin.

I'm not going to rest until jobs are created. I'm not going to rest until the economy is OK. I'm not going to rest until the oil spill is - you know fixed.

Takes a lot of vacation. Spent four days in Nevada. He's going to Maine, his third vacation. Photo-ops with sports teams.

He's got a lot of free time on his hands, it seems, Governor.

PALIN: Yes, in this case it's certainly a desire of the American people to see a lot less golf and a lot of more Gulf. And the American people in this court of public opinion - the American people have caught on.

They understand that no, there is a disengagement, there is a disconnect between the White House and specifically our president and what's going on there in the Gulf and what's going on there in the border.

Shoot, President Obama hasn't even gone down there to visit the Border Patrol agents and to see what's going on there and to figure out how he can help. He has all the power in the free world that he could help secure our border, much less there in the Gulf, some of the things that could and should be engaged in so that the American people, especially Gulf residents, can understand that we're doing everything that we can in the federal government to make sure that there is a remedy for this tragedy that's ongoing.

HANNITY: You know, I thought even Bill Clinton was trying to send him a message saying it's not really the time to emote right now. And I think he was saying to the president, stop being angry, I can't suck it up with a straw, I can't dive down and plug it, and - or plug the damn hole, to quote him exactly here, or know whose what to kick.

So it's interesting to me and you ran against the president. You ran against Joe Biden. I thought they ran a pretty tight campaign. I thought he'd stuck to his message. He read his teleprompter. People were fainting.

Why do you think they're so incompetent or seemingly tone-deaf on an issue as - that has this much importance?

PALIN: Our president has no experience as an administrator in an executive office. He doesn't have experience running a business or leading a team, it seems. And that becomes quite evident when you see and you can feel and sense that disconnect between a tragedy like the Gulf and what's going on.

Now we've talked about it, Sean, before that it took him how many weeks before he even desired to speak with the CEO of the company that was able to kind of dictate and describe and portray to the public the facts of the spill? That's evidence of a lack of experience.

And it's a lot different running a campaign where you have a teleprompter in front of you and you have a team of people around you kind of prodding you along and telling you what to say and what to do. And then when you're sitting there in that oval office or when you're sitting in the governor's seat, or you're sitting in the mayor's seat, and you're expected to call the shots. And you're expected to put your good common sense to good use and appoint good people around you to help advise, there's a big difference between the two arenas that he's been in.

HANNITY: It's interesting because then the president also put a moratorium in place against further oil drilling. That was lifted by a judge that said they were being dishonest in terms of citing their experts. But as of today the Interior secretary argued that once again they've issued another moratorium on drilling.

What do you think the results of this is going to be? Are we going to be paying $5 a gallon for gasoline?

PALIN: Not only that, but we're going to be more beholden to foreign countries who are going to own our energy supply and that scares me for the future and the security of our nation.

Now that's more evidence, too, of the disconnect between what's going on in the White House and the court of public opinion. Americans know that we have safe responsible, ethical opportunities to domestically drill onshore in ANWR up here in Alaska and in shallow waters around the coastal area of the U.S.

We have opportunities to not have to be outsourcing our energy supplies and our opportunities and our jobs to foreign countries. But instead, the president challenging even the judiciary, not really understanding, it seems.

HANNITY: All right.

PALIN: The separation of powers or the separation of branches of government. Challenging the judiciary and saying somehow, some way we're going to ban offshore drilling any way?

HANNITY: Governor, we got to run. I assume you're going to be on the road for the next 113 days or a lot of those days?

PALIN: These midterms are coming up quickly. We're doing all that we can to make sure that good common sense constitutional conservatives are elected. They can help put this country back on the right track. I'm going to be busy.

HANNITY: All right. Governor, we'll see you out there hopefully on the road. And as always, thank you so much for being with us.

I did like that shot of the plane taking off right behind you. That was - that's one for the record books. If that's Todd, we'll call him later. Thank you.

PALIN: OK. Thanks, Sean.

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