This is a rush transcript from "Hannity," February 24, 2011. This copy may not be in its final form and may be updated.

SEAN HANNITY, HOST: A government shutdown. The possibility is not only real but could be just days away.

Now Republicans are insisting that any short term agreement on the budget includes spending cuts. Democrats are standing strong for no reductions, whatsoever.

So, could Washington really close its doors on March 4th? Now neither side is showing any signs of wanting to compromise or back down. Especially the new Tea Party-backed freshman class. After all, the whole reason that they went to Washington in the first place was to do just that, cut spending.

And joining me now is one of those GOP freshmen who is determined to take our government back, and that's Kentucky Senator Rand Paul. His brand new book, "The Tea Party Goes to Washington" is on sale now.

Senator, good to see you. How are you?

SEN. RAND PAUL, R-KY.: Good to be with you, Sean.

HANNITY: I appreciate you being here. Well, first of all, March 4th, is coming. We keep hearing from Chuck Schumer anytime he gets near a microphone, that the government is going to be shutdown. Nancy Pelosi's aides say it.

PAUL: It sounds like maybe that's what they want. They need to ask what we want. I don't think any of us want to shutdown the government.

But the thing is, it doesn't have to be an either or situation. They say, either we get what we want, or we shut down government. What about there's an in between situation, either cut some spending, or perhaps, we only just spend what takes, what comes in.

HANNITY: How about a third option. This is a little old Hannity idea. How about the Republicans every time they say, oh, do you want to shut the government down? How about you ask, do you not want to cut $100 billion to start?

PAUL: Right. And do you want us to get into a problem where we have such an enormous debt that we can't pay it back? Or that you can't continue to sustain Social Security or Medicare because there's not enough money? So, they have to admit that we have to have some reforms. To do the same old thing is really not a tenable solution.

HANNITY: What will it take for to you to support an increase in the debt ceiling in terms of exactly, how much money is going to cost, you know, or how many spending cuts do you need to say, all right, I'll give a short term raise in the debt ceiling, but only if we cut this?

PAUL: I can't imagine voting to raise the debt ceiling unless we do something dramatic. To me, something dramatic would be a balanced budget amendment to the Constitution. It would still take a few years to enact, but then we would have a four or five year period and we would have to balance the budget. That's the only thing that will get me to because what will happen is, they are going to say, raise the debt ceiling. Three months later they will be back asking the same thing.

HANNITY: So, if they agree to $100 billion in cuts, that is not enough for you?

PAUL: Well, the thing is, next year is supposed to be $1.65 trillion.

HANNITY: You know, what is the worst-case scenario, does America become Greece?

PAUL: Possibly. I think what you look at is, there's several ways you pay for your debt. You can either tax people more. Most of us think we are taxed enough already. You can borrow more. But there comes a limit to borrowing, and then interest rates will rise. Or you simply print the money at the Federal Reserve to pay for it. But that can destroy a currency. And our currency is so interconnected to the world you destroy the American dollar, really, you haven't seen chaos until you've seen that happen.

HANNITY: You said in your book, you've said, first of all, I thought it was interesting, you said the Tea Party found you which was pretty interesting, but we not pay more in taxes than we spend on food, clothes and housing combined.

PAUL: People don't want more taxes. And I think the last election was about that. We don't want more taxes, we want less spending, we want less debt. We are worried about passing that on to our kids and our grandkids. But I'm also worried that we could destroy the economy and maybe even the country if we don't tackle it. But 100 billion is not enough, 500 billion is not enough.

HANNITY: We need to knock trillions off. Here's what -- I love what Bob McDonnell did in Virginia. He went back to 2006 spending levels.

PAUL: Right.

HANNITY: Now, Obama wants to stay up to 2010 levels. The Republicans in the House want to go to 2008 levels. What would be so bad about going back to 2005 or '06 and say, all right, that's our budget, deal with it.

PAUL: You could. And that is one way of looking at. Interestingly, if you go to Bill Clinton's last budget and you do cost of living increases from then, inflationary increases, it is still balanced.

HANNITY: It would be balanced.

PAUL: Yes. We've gone up just dramatically. The thing is, we went up from 2008 to 2010, 25 percent in one two-year cycle, up 25 percent. And now, president says, he's found newfound courage he's going to freeze it at those inflated levels.

HANNITY: It's up 24 percent, we'll freeze it at the new high level.

PAUL: And add $13 trillion in debt.

HANNITY: You want to deal with entitlements. So, this is -- we are always told the third rail. You talk about this, you talk about means testing, you talk about raising the retirement age and people get angry.

Is that what you are proposing that we have to deal with the entitlements because that's the bigger part of the budget?

PAUL: It is half the budget, over half the budget is entitlements, if you don't deal with it, you are not serious about the debt.

HANNITY: Raise the retirement age?

PAUL: Yes, slowly.

HANNITY: To what age, the day before I die?

PAUL: We're going to raise it gradually over a 30-year period. It will probably go to 69 and then they attached a longevity.

HANNITY: Sixty-nine to 62 or 65.

PAUL: Well, it's 67 right now for Social Security. And it would go to 69, and then it probably, would ultimately go to 70 based on longevity, but based on a formula. And then you fix it forever because you tie it, you probably have a means testing.


HANNITY: So, in other words, if I were smart and saved enough money, and I paid into Social Security my whole life, basically Congress would legislate the authority to steal the money that I gave them?

PAUL: If we had the money Sean, we would give it to you, OK? We don't have it.

HANNITY: But isn't that kind of what it is?

PAUL: Kind of. And it's not a good situation. See the thing is, is people think I'm jumping up and down wanting to raise the age or means testing, I'm doing because I want to save the system. I think there will be a time, if we go the way of Greece, where there be in no checks. So, the liberals want to say, you are for doing all these things. No, the baby boom wasn't my fault. A baby boom happened. We have all these people retiring, the only way you pay for them is by structurally changing what we have.

HANNITY: My question to you is, do you think the Republican Party shares your strong, conservative values, or are you going to have to pull a lot of them along?

PAUL: Yes and yes to both of those. The thing is, when I sit at the Republican conference at lunch and we talk about policy, I find nearly unanimous that we are for a balanced budget amendment, we're for small limited government. But then there are tough choices. You saw when the continuing resolution went to the floor in the House, there were a lot of amendments to cut 10 million, 20 million, 50 million, small amounts. And a lot of Republicans deserted us. You know, they voted with the Democrats.

And if you can't cut 10, 20, 50 or 100 million, you can't balance the budget ever.

HANNITY: If you don't do it with serious money -- look, I support what you are doing even though you are proposing a bill to steal all the money I paid my entire adult life into Social Security, I think it's going to have to happen.

As a matter of fact, I don't count on it. I don't think it going to be there for me and I don't think it's going to be there my kids. And I hope they get to opt out.

All right, Senator, we're counting on you. Honestly, we need people to understand the gravity of this situation. We wish you all the best.

Thanks for being with us and the book is terrific, thanks.

PAUL: Thank you.

Content and Programming Copyright 2011 Fox News Network, LLC. ALL RIGHTS RESERVED. Copyright 2011 CQ-Roll Call, Inc. All materials herein are protected by United States copyright law and may not be reproduced, distributed, transmitted, displayed, published or broadcast without the prior written permission of CQ-Roll Call. You may not alter or remove any trademark, copyright or other notice from copies of the content.