The following is a rush transcript of the February 27, 2010, edition of "Fox News Sunday With Chris Wallace." This copy may not be in its final form and may be updated.

CHRIS WALLACE, ANCHOR: I'm Chris Wallace and this is "Fox News Sunday."

(BEGIN VIDEO CLIP)

WALLACE (voice-over): Governors across the country are struggling to balance their budgets, but one already has a solid record of taking on government workers and turning his state's economy around.

We'll sit down with Indiana governor and possible presidential contender Mitch Daniels. Then the 2012 campaign, the polls say he's a front runner for the Republican nomination. But does he have the desire to get in the race? We'll ask former Governor Mike Huckabee. Daniels and Huckabee, only on "Fox News Sunday".

Plus, the latest on the revolution in Libya and we will ask our Sunday group, could President Obama do more to topple Muammar Qaddafi?

And our power players of the week, taking on the leaders in Iran by making fun of them. All right now on "Fox News Sunday".

(END VIDEO CLIP)

WALLACE: And hello again from Fox News in Washington. As states struggle with huge budget gaps and take on public workers, our first guest has become the new "it boy" of American politics.

Republican Governor Mitch Daniels of Indiana is being celebrated for turning deficits into surpluses and adding jobs, and some are saying he should be the Republican nominee for president next year.

Governor Daniels joins us now. Governor, welcome back to "Fox News Sunday."

GOV. MITCH DANIELS, R-IND.: Thank you, Chris.

WALLACE: And we need to say that what is going on there is you just had rotator cuff surgery and you're not going be ready for spring training.

DANIELS: All the right wing jokes have already been made, so--

WALLACE: All right, I went with baseball.

(CROSSTALK)

WALLACE: You are in the middle of a standoff right now with House Democrats who have crossed state lines and are inside Illinois and are blocking any action in the legislature.

They first said that they were fighting against the right-to-work law, which is now dead. Now they say they are fighting against 11 other bills on the agenda. Question, are you prepared to make a deal to get those House Democrats back to Indiana?

DANIELS: No, if they come back, we will talk about what sort of changes or amendments they might want, but while they are subverting the democratic process, there is nothing to talk about. So when they come back to work, we will talk about their concerns. You describe it quite accurately, Chris. Our situation is very different than Wisconsin. This is not about government unions. This was a bill I did not initiate and I thought it ought to really wait for a different time, because I thought exactly this might happen and it might get in the way of a very important agenda that was laid in front of the people of Indiana. Low-tax agenda, reduce the corporate tax to attract jobs, reform education and so forth.

And yes, they ran off to Illinois ostensibly over the right-to- work bill. But as soon as they got what they wanted there, they issued an ultimatum from a hot tub over there with about 10 more items.

This is to tell you how reactionary Indiana Democrats are. The first four items they want killed are President Obama's race to the top agenda.

WALLACE: When unions started protesting the right-to-work law this week and House Democrats took off, you said that you thought that the bill should be dropped, as you just pointed out. Then you added this.

(BEGIN VIDEO CLIP)

DANIELS: Even the smallest minority, and that's what we've heard from the last couple of days, has every right to express the strength of its views, and I salute those who do.

(END VIDEO CLIP)

WALLACE: Conservative bloggers immediately hammered you, said you weren't tough enough, said you wanted a truce on fiscal issues, and the day after you issued a much tougher statement. Here it is.

(BEGIN VIDEO CLIP)

DANIELS: The House Democrats have shown a complete contempt for the democratic process.

(END VIDEO CLIP)

WALLACE: Were you trying to reassure conservatives that you are tough enough?

DANIELS: No, I was reiterating exactly what I said the first day.I was a little I guess careless about my pronouns. The statement I made I'll make again. I was referring to the private sector protesters, the union members who came to disagree with the right-to-work law. They had and they have every right to express their First Amendment point of view. When I -- I was distinguishing --

WALLACE: When you said them, salute them, though, you weren't talking about the Indiana House Democrats?

DANIELS: No, I mean, in fact it's very -- I guess I'm glad I made the mistake because it allows us to really I think clarify an important distinction. It is one thing for the people in the private sector to express their point of view as our protesters did.

It is quite another for public servants accepting a public paycheck, having lost an election to a very clear agenda, to try to trash the process, run off to a different state and hide out. That's what I said on both those days was completely illegitimate.

WALLACE: All right. You took away -- what is going on in Wisconsin now, you took away public workers' collective bargaining rights by executive order six years ago the day after you were sworn into office, but now you are calling their unions the privileged elite. Question, teachers, public safety officers -- the privileged elite?

DANIELS: Across America, Chris, we've had a huge inversion. There may have been a time, a century ago, where public employees were mistreated and vulnerable and underpaid. If that was ever a problem, we have over-fixed it. Not everywhere but in many places.

As you know very well, public employees in America -- most decidedly federal employees, but everywhere -- are better paid than the taxpayers that pay their salaries. When you add much more generous benefits and much more generous pensions on top, the gap widens, and then there is near total job security in the last recession.

WALLACE: But you really would call teachers, I mean, they're public servants, you said they are public servants. Would you really call teachers a privileged elite?