The following is a rush transcript of the April 24, 2011 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): A credit rating agency lowers its outlook on the U.S. economy from "stable" to "negative." As gas prices soar and our national debt keeps growing. We'll sit down with New York City mayor and billionaire businessman Michael Bloomberg to talk about the economy, immigration and his political future. Michael Bloomberg, only on "Fox News Sunday."

Then, the GOP presidential field remains wide open. We'll hear from a likely contender, former Republican Senator Rick Santorum on what he brings to the race.

The White House orders predator drone strikes in Libya. We'll ask our Sunday panel what is the end game against Muammar Qaddafi. All right now on "Fox News Sunday."

(END VIDEO CLIP)

WALLACE: Hello again. Happy Easter from Fox News in Washington. Well, we seem to be facing a perfect storm these days of economic problems and political stalemate.

Who better to talk about it than our first guest? Making his first appearance ever -- I'm choked up about this -- ever on "Fox News Sunday." The mayor of New York, Michael Bloomberg.

Mayor Bloomberg, welcome, good to have you with us.

NEW YORK CITY MAYOR MICHAEL BLOOMBERG: Thank you for having me.

WALLACE: I want to begin by asking you to put on your hat as a successful, very successful businessman. This week Standard & Poor's as we just mentioned lowered its outlook for U.S. Treasury securities from "stable" to "negative."

The dollar is at its lowest level since 2008. There's no sign of a deal on our debt or the budget. Gas prices are spiking. How much trouble is this U.S. economy in?

BLOOMBERG: Well, I don't know that we are in big trouble, but we certainly could be very easily. I think this is a warning. We cannot continue to go on without intelligent immigration policies that we need to create jobs. We cannot continue to spend money we don't have.

Deficits do matter, certainly in the long-term and sometimes even in the short-term. We cannot go being the leader of the free world, not having policies that everybody understands, and that we can pull the public behind.

We need this country to pull together, and we seem to be emphasizing our differences in this politically-charged time, rather than focusing on what unites us.

WALLACE: Well, let's talk about a difference. The president and House Republicans have offered two very different plans for national budget. The president does want some spending cuts. But he also wants the rich, the wealthy, those over $250,000 to pay $1 trillion more in taxes. The GOP wants to get it all out of spending cuts, including major overhaul of Medicare and Medicaid. Who's right?

BLOOMBERG: Well, I think they're both right. All of the above things need to be addressed. The encouraging thing is maybe kicking and screaming, but they finally are willing to start addressing the issue.

In all fairness, Ryan deserves some credit because I don't know that I agree with most of the things or all of the things he said, but I will say that at least people are now talking about whether we can afford to continue to do what we've been doing, whether or not we're getting good value for our money and whether we're targeting those things that work or just staying with the things that have been there for a long time.

WALLACE: Now you now say they're both right. Back when they made the budget deal in the lame duck session in December, you said that both sides were right to extend the Bush tax cuts because raising taxes now would be a bad thing. Do you still feel that way?

BLOOMBERG: Well, I think long-term, we have to reduce expenses and find alternative revenue sources. You can have revenue sources that are politically palatable and you can have revenue sources that aren't.

You can have revenue sources that expand the economy and revenue sources that keep the economy from growing and maybe send it in the other direction. In the end, long-term you have to grow your way out of problems.

That is true for cities. That's true for states. That's true for the federal government. Short-term we have to make sure we have a tax code that is understandable, and that everybody agrees is fair. And one that we can live with in terms of how we collect and how we make sure that everybody pays their fair share.

The same thing is true on the other side. We cannot continue to say we've got to cut, but we can't touch Medicare and Medicaid, Social Security, defense. That's virtually 90 percent of all of our spending.

When people say well, we can always cut 1 percent. Yes, you can cut 1 percent out of 100. You can't cut 1 percent out of 10 percent. We don't want to shut down air traffic control. We don't want to shut down the IRS or we won't have any tax revenues.

We don't want to shut down the CIA and the FBI. We can't protect ourselves. A lot of things the government does that everybody says too much government. But when you tell them which programs, "don't cut mine."

That is what Congress and the president have to deal with. The political realities that everybody wants to continue their own services, willing to cut the other guy's services, doesn't like layoffs and doesn't want to pay more taxes.

WALLACE: Specifically -- because you say eventually you have got to grow your way out of this -- would you raise taxes on the wealthy?

BLOOMBERG: Today, no, because I just think this economy nationwide is at a point where it really could go either way. I don't think that we shouldn't -- I do think we should have to have taxes. People have to pay their fair share.

I do think the majority of the money is going to come from the wealthy. That is where the money is. On the other hand, today is not the right way to do it. If you were to do it, you have to do it with meaningful cuts done in a time frame that is believable.

If we say we're going to do something for the year 2030, nobody believes that that is ever going to happen. 2010 is right now. 2011. If you are going to do something for 2020, it starts to be believable, but you have to have an awful lot of things in place so everybody understands we are going to face this issue.

You know what we have, Chris, in this country, fewer and fewer people supporting more and more people. The youth in our country are assuming a burden to take care of people our age, you're in -- the age of mine and older -- that they will just not be able to satisfy. That is another reason why we need immigrants.

WALLACE: Back when you talk about the political stalemate, back when Barack Obama took office, you expressed some confidence in the idea that he was going to be able to reach across partisan lines and help solve the nation's big problems. Why hasn't that happened?

BLOOMBERG: Well, I think there is still time to do that. I think it's a difficult job to reach across party lines. Particularly, when the country is divided and Congress is divided.

You know, the president starts out every day with a majority in the Senate and minority in the House, except his majority in the Senate isn't as reliable as you would think it would be. We talk about partisanship, but neither party has a real majority in both Houses where they could enact legislation.

Then you'd have to get a much bigger than just a majority to override a presidential veto. I think what the president should be doing is -- I think he is starting to do that. I think Bill Daley will certainly help him do that. Bill has a lot of friends.

WALLACE: Chief of staff.

BLOOMBERG: His chief of staff. The president's got to start inviting people over for dinner. He's got to play golf with them. He has to pick up the phone and call and say, "I know we disagree on this, but I just want to say -- I heard it was your wife's birthday or your kid just got into college."