The following is a rush transcript of the February 20, 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."

(MUSIC)

WALLACE: Wisconsin state capital -- the new frontline in the battle over how to cut government spending. With other states watching, we'll talk with Republican Governor Scott Walker about his plan to change the rules for public employee unions.

And then the president's budget lands on Capitol Hill. Now, the debate over how much to cut. We'll hear from two senators who could hold the key to compromise: Oklahoma Republican Tom Coburn and Missouri Democrat Claire McCaskill.

Plus, protests spread across the Middle East. We will bring you the latest and ask our Sunday panel if U.S. officials we need to rethink what's happening in the region.

And our power player of the week: a general's wife finds her own way to serve our military.

All right now on "Fox News Sunday".

And hello again from Fox News in Washington.

The political firestorm in Wisconsin over proposed changes to bargaining rights and benefits for government workers intensified this weekend. Here is the latest: an estimated 70,000 demonstrators gathered at the state capitol Saturday -- most of them opposed to the governor's budget plan but also some supporters. Public employees offered to pay more for pensions and health benefits if they can keep their collective bargaining rights. And Senate Democrats remain in hiding out of state so no vote can be taken.

Joining us now: the man pushing the changes, Governor Scott Walker, who comes to us from Madison, Wisconsin.

And, Governor, welcome to "Fox News Sunday."

GOV. SCOTT WALKER, R-WI.: Good to be with you, Chris.

WALLACE: Those 14 Democrats who fled Wisconsin to avoid -- to block a vote in the state senate say they'll come back if you'll sit down with them and work out a compromise and the deal would be that the unions agree on the money issues but they keep their collective bargaining rights.

Governor, are you willing to do that?

WALKER: Well, no. First off, those senate Democrats should realize, if you want to participate in a democracy, you got to be in the arena. And the arena is right here in Madison, Wisconsin. It's not hiding out in Rockford, Illinois, or Chicago, or anywhere else out there. Democracy means you show up and participate.

And they failed to do that. They're walking out on their job. They're doing what's contrast to the many, many thousands, almost 300,000 state and local workers across Wisconsin, who despite those protesters, most of them showed up and did their job like they're paid to do. For us, this is about balancing the budget. We've got a $3.6 billion budget deficit. We are broke. Just like nearly every other state across the country, we're broke.

It's about time somebody stood up and told the truth. And the only way for us to balance the budget at the state level or at the local level is to make sure that we give those local governments the tools they need to balance the budget, and that's what we're proposing.

WALLACE: Yes, but I don't understand. If it's a money issue and balancing the budget and they are willing to concede on the money issues, why isn't that enough? Why do you also have to take back some of their collective bargaining rights?

WALKER: Well, they aren't because, in the end, they can say that, but that's really a red herring. The same groups back in December, after election, before I was sworn in, tried to ram through literally in a lame duck session employee contracts that would have locked things in before I got there. So, they're not really interested. But more critically, I was a county executive, an elected official in Milwaukee County, a county that's never elected Republicans before -- I was there for three different elections because we tried to tackle these very same issues.

And what stood in the way time and time again was collective bargaining. We've got over 1,000 municipalities, 424 school districts, about 72 counties in the state, all of which need to have the power to be able to offset what's going to happen in Wisconsin next week, just like New York, in California, wherever else, has been doing, and that's cutting billions of dollars from local governments.

The difference is, unlike those other states, I want to give those local governments the tools they need to balance the budget now and in the future. They can't do that with the current collective bargaining laws in the state.

WALLACE: Governor, I understand it's the Senate Democrats who took off. But how long are you willing to let the standoff go on? And what would you think of the legislature voting that the Senate Democrats are in contempt of the legislature, and therefore, what they're doing is a crime?

WALKER: Well, on the latter part, my hope is that cooler minds will prevail and by sometime earlier this coming week, they'll show up for their job. I've said all along, the best way to motivate senators to come back is for constituents in their districts, regardless of how they feel about the budget repair bill, to tell the senators to show up to their job they're paid to do.

WALLACE: But what if they don't come back?

WALKER: Well, we're going to look at every option out there. But I'm an optimist. I'm realistic about their challenges but optimistic about the solutions. And I believe we've got a path that allows to have everybody come back and vote. There's going to be plenty of time to have the debate. They can make their case, they can make their argument. But democracy is now hiding out and out of state. It's about showing up here in the capital and making the case here.

And for us, we're willing to take this as long as it takes, because, in the end, we're doing the right thing. We're doing the right thing for Wisconsin. And we're leading the way, as we did in the past in Wisconsin, on reform. We are leading the way again when it comes to budgetary reform.

And for us, we have to do this. Again, we've had for decades -- we had leaders, Republicans and Democrats alike, who pushed off the problems. Well, there's no place to push them off to. Two years ago, my predecessor and many of the same majority Democrats that time who are now hiding out push through a budget that took $2 billion of one time federal stimulus money and used it to balance their budget for (INAUDIBLE) school-like deficits. They didn't make the tough decisions then. We're going to make them now because we have to, to get the state's economy again and to get our budget balanced.

WALLACE: And President Obama stepped into this controversy this week. Let's look at what he said.

(BEGIN VIDEO CLIP)

PRESIDENT BARACK OBAMA: Some of what I've heard coming out of Wisconsin where you're just making it harder for public employees to collectively bargain generally seems like more of an assault on unions.

(END VIDEO CLIP)

WALLACE: Governor, you've said that the president should focus on balancing his own budget. But beyond that, do you think that his stepping into a state collective bargaining issue is inappropriate? And what do you think of his political arm, Organizing for America, taking a role in mobilizing some of the opposition?

WALKER: Well, I think you're right. The president ultimately should stay focused on fixing the federal budget because they've got a huge deficit, and believe me -- they got their hands full. They're far from getting it accomplished in Washington.

But in a larger context, you know, the thousands of protesters who are over this past week have every right to be heard, at least those from Wisconsin. An increasingly, as you just alluded to, there are more and more coming in from other states across the country. For those who are from Wisconsin, they have every right to be heard.

But I pointed out, there are over 300,000 state and local workers who weren't here, were doing their job, doing what they're paid to do. We appreciate that. My hat's off to them.

But most importantly, there are 5.5 million people in the state, taxpayers who, by and large, are sacrificing in their own jobs in the private sector paying much more than the 5.8 percent for pension and 12.6 percent for health care I'm asking for -- in fact, in many cases, two or three times that amount. They make tough sacrifices to balance the budgets in their communities and their homes and their businesses. I think it is realistic that we make sure that as loud as the voices are in the capital, we don't let them overpower the voices of the taxpayers I was elected to represent and elected to get the job done, which is balancing this budget.

WALLACE: Well, let's talk about that. You say this is not about the unions. This is about balancing the budget. But your opposition says this is about union busting.