The following is a partial transcript of the Sept. 30, 2007, edition of "FOX News Sunday With Chris Wallace":

"FOX NEWS SUNDAY" HOST CHRIS WALLACE: Meanwhile, the focus in Congress these days has shifted from the war in Iraq to spending and, first, how to expand the State Children's Health Insurance Program, or S-CHIP.

Joining us now to debate the issue are two Senate leaders, Republican Trent Lott and, from his home state of New York, Democratic Charles Schumer.

And, Senators, welcome back to "FOX News Sunday."

SEN. TRENT LOTT, R-MISS.: Thank you, Chris.

SEN. CHARLES SCHUMER, D-N.Y.: Good morning.

WALLACE: In his Saturday radio address, the president repeated his veto threat, and speaking for the Democrats was a 12-year-old boy who was saved by S-CHIP. Let's listen.

(BEGIN AUDIO CLIP)

PRESIDENT GEORGE W. BUSH: Congressional leaders have put forward an irresponsible plan that would dramatically expand this program beyond its original intent, and they know I will veto it.

(END AUDIO CLIP)

(BEGIN AUDIO CLIP)

GRAEME FROST: I don't know why President Bush wants to stop kids who really need help from getting CHIP. All I know is I have some really good doctors.

(END AUDIO CLIP)

WALLACE: Senator Lott, in your home state of Mississippi, there are 60,000 children of working families who are eligible but not enrolled in S-CHIP.

How can you support a presidential veto which will continue to leave those 60,000 kids unprotected?

LOTT: Well, first, you need to know, Chris, that this program was created in the '90s when we had a Republican Congress, when I was the majority leader, and I voted for it, because I do believe that we need this health insurance program for the generally poor, low-income students.

I also think that the program needs to be increased. But this is a classic example of how in Washington no good deed goes unpunished. Well-intentioned, to be targeted at low-income, poor kids and to add even more — that was the goal.

Now it has been bumped up over and over again until now it's already covering kids from families with $62,000, and some states even have asked to go as high as $83,000 to be covered — and adults. That's what really gets my goat. Hundreds of thousands of adults are now covered by the children's health...

WALLACE: We're going to get to all that.

Senator Schumer, let's talk about this proposed expansion which the president calls irresponsible. S-CHIP currently covers mostly children of families making 200 percent of the poverty level, which is $40,000.

But in New York, you have supported making it eligible for families that make twice that. Why should taxpayers subsidize families making $80,000 a year?

SCHUMER: Well, Chris, first of all, the bill does not go above 200 percent without the administration's OK. This is a program that's needed, and the average health care cost per family is about $1,500 a month, $20,000 a year.

There are people way above the poverty level who have a rough time affording $20,000 a year, and lots of kids go uncovered. And we're all hurt as a country when a child is not covered by health care and goes to school sick.

In one way or another, they lose out for the rest of their lives in many ways. So we think it's important to cover as many kids as we can.

The president could disapprove any waiver above 200 percent. He recently approved one as high as 350 percent for New Jersey. And so I don't think that's the real argument people are against it.

And second, we are very responsible on this. We pay for it. We Democrats have adopted a plan, which the Republicans never did when they were in office, called pay-go. Any new program has to be paid for.

This is fully paid for and will not increase the deficit. We do it by raising the tobacco tax.

WALLACE: Let's talk about this question of income limits, because I think it's something that is at the center of this argument, Senator Lott.

Routinely in this program, if it's expanded, it would go to people, families, making 300 percent of poverty. That's $60,000 a year.

And critics say, Senator Lott, that this means that a lot of families that already have and are paying for private insurance could simply go on the public dole and be subsidized by taxpayers.

LOTT: That's absolutely one of the biggest problems. They would move off of private insurance, and it forces them off, frankly. Why would you not do that if you can get over on a federally funded program?

But also, one of the things that really bothers me about what the Congress did, again, in a political gotcha move, was to say — to take out a provision that the administration says look, for those states that want to go above this 200 percent of poverty, at least first make sure you've insured or you've covered 95 percent of the poor kids before you start going up the income ladder and including adults. That is taken out by this bill.

But one other thing. This bill has a typical Washington sleight of hand. It's got about a $40 billion shortfall over a 10-year period, and they fund it with a 61-cents-a-pack tax increase, bringing it to $1, and say, "By the way, that will discourage people from smoking." That's good.

But the problem is if people do stop smoking, you won't have the money and the program won't be paid for. Then you'll have to either cut the program or raise taxes somewhere else. Typical Washington — now you see it, now you don't.

WALLACE: All right. Let me see if I can focus this back, Senator Schumer, on this question of income limits.

Families making $60,000 a year, already paying for private health insurance, and yet under this program they'll be able to get off the private sector program and basically have the taxpayers subsidize them.

SCHUMER: Well, again, Chris, not a single state can go above 200 percent unless they apply to the administration, the Bush administration, and they get an OK.

WALLACE: But it might be the Clinton administration in a year and a half.

SCHUMER: Well, the Bush administration is — has approved, I think, 19 waivers going above 200 percent. And again, the cost of health insurance goes through the roof.

Ask your average middle-class person, ask your person in New York who makes $60,000, who's a police officer, or a salesman, or a schoolteacher, can they afford $20,000 a year for health care.

And as for them going off and going into private — to private, two things. First, they have to take the whole family off, including themselves. They're not going to do that so quickly.

Second, the bill has incentives to encourage the private sector to stay with the people. We don't want people going off. The bill has strong incentives to encourage people to stay on if they have insurance.

But that is not a good reason to tell nine million children in America who are not covered that they can't get coverage. This is — we are the only western country that doesn't do this.

We paid for it with a tobacco tax. The CBO says it will pay for the bill. And the American people are overwhelmingly for this. In fact, it had such support, Chris, that 18 Republican senators voted with us — broad bipartisan support.

WALLACE: Senator, I'm going to get to that...

SCHUMER: Conservative senators like Senator...

WALLACE: Senator Schumer, I'm going to get to that in a moment. But let me just ask you about one other aspect of this, because I want to move on to another key point here.

As Senator Lott points out, it doesn't just cover children, although it's overwhelmingly children, about six million, but 700,000 adults are also covered by the program now, including some adults without children. Why should that be allowed?

SCHUMER: Right. It shouldn't, and the bill phases that out and puts strong incentives on the states to get the adults out of the program. It should just be for kids. And that's what the bill works for.

But let me tell you this. To do what President Bush wants to do, take a million kids off the rolls, not increase, not even stay the same, but decrease because 700,000 adults are covered, and that number's going down — that's not fair to those kids.

LOTT: Hey, Chris, let me make two points right quick. First, Chuck is right. This administration and the previous administration, but especially this one, gave too many waivers to too many states. That is a part of the problem.

But here's my point. We do need to move the program up. We need to make it a better program. Now, we can fight. We can have a partisan political charge, counter-charge, or we can come together with a solution to make sure that low-income kids are really covered.

Do the Democrats want to do that, or do they want an issue? That's what's at stake.

WALLACE: Senator Lott, you talk about Republican alternatives, but some of your Republican colleagues, including conservative Senator Pat Roberts, say they haven't seen any alternatives. Let's watch.

(BEGIN VIDEO CLIP)

SEN. PAT ROBERTS, R-KAN.: I have yet to see a plan from the administration that can actually pass the Congress. In fact, I have yet to see an actual plan from the administration.

(END VIDEO CLIP)

WALLACE: Let me ask you — this is Senator Schumer's question. Why did 18 of your Republican colleagues in the Senate join the Democrats in voting for this expansion of S-CHIP?

LOTT: Well, let me defend what they did, even though I strongly disagree. Some of them will tell you we were trying to keep it from exploding even higher.

They agreed — OK, we'll go to $35 billion increase because we don't want it to be a $70 billion increase, typical of what Republicans do, you know — OK, well, we're going to lose, just I want to lose half as much.

But I think there's some responsibility or credibility to doing that.

I have a plan. Republicans on the Finance Committee — we were talking about going to, you know, $9 billion to $12 billion, maybe even as high as $15 billion above where we were to make sure that those low-income kids that were covered were continued to be covered and others were covered that had not been covered.

Clearly, there is ground for a compromise here and a solution that will really help the children. In fact, Congressman Joe Barton and I have already introduced a bill that would extend the program for 18 months and increase the coverage to get more kids.

WALLACE: Senator Schumer, getting back...

SCHUMER: Chris, let me just say one...

WALLACE: ... to Senator Lott's question, do you want an issue or do you want a compromise?

SCHUMER: Well, it clearly was a compromise. The senior Republican on the Finance Committee, Senator Grassley, hardly a free- spending liberal — the number two senator on the Finance Committee, Senator Hatch, one of the most conservative Republican senators — not only voted for this — that's not the case — they were involved intimately in the negotiations.

They were with Senator Reid and Senator Baucus, our two leaders on this issue, for hours, days, weeks, coming up with this program. They're proud of the program.

You can see it in their speeches — not just Pat Roberts, but Senator Grassley said the president hasn't read the bill. Now, he doesn't usually talk like that about the president.

So this is a broad bipartisan bill with the broad support of the American people, 70 percent, 80 percent, and you do have a small number of Republicans who are very, very conservative on this, whose values, I think, are out of whack with America's values in saying that kids shouldn't get covered.

And they always come up with this reason or that reason not to support it. But this is a tempered, moderate bill.

WALLACE: Senator Schumer?

SCHUMER: It's careful. And it's gotten broad bipartisan support.

WALLACE: Senator Schumer, let me ask you, what's going to happen if the president vetoes this and you can't override him? Will the Democrats keep voting and sending this bill to the president?

SCHUMER: Yes. We do have enough votes already to override the president in the Senate — 51 Democrats, 18 Republicans, 69...

WALLACE: Yes, but not enough in the House.

SCHUMER: That's enough. We're somewhat short in the House. From what I'm told, there are some House members, mainly Republicans but a few Democrats, who might change.

But my guess is we will not have enough to override in the House. Speaker Pelosi has said, and I agree with this, that she is going to try and send this issue back to the president over again because it is so needed, so desperately needed, by our kids and with such broad support.

LOTT: That shows it's just totally politics. Now, the president's going to veto it. It's going to be sustained. We need to sit down and make some changes so that we can actually get broader support and the president can sign it.

That's the way it works here in this city. There's at least three parties to every negotiation — the House, the Senate, the Republicans, the Democrats and the White House.

WALLACE: Let me ask you, Senator Lott.

SCHUMER: Hey, Chris, I have to say this. To say that this is politics when we feel the need so keenly...

LOTT: Well, why would they just send it back again and again...

SCHUMER: Can I just finish?

LOTT: ... when we can get an agreement that would be signed?

SCHUMER: Because we want — because we want to get...

LOTT: Because what you want is an issue. That's what's involved here.

SCHUMER: Trent, you may have your policy. The president — the only thing he has gone for is a plan that will cut a million kids off. That's not a compromise.

LOTT: Well, he's going to have to compromise...

SCHUMER: And we have to deal with that.

LOTT: ... and so are you, Chuck.

SCHUMER: Well, he hasn't. I hope you'll get him to compromise. So far he's adamant.

LOTT: Well, I'd like to have a chance to try.

WALLACE: Well, let me ask you about this.

SCHUMER: Good. Well, godspeed.

WALLACE: Wait, wait, wait, wait, Senator Lott — I mean, Senator Schumer, let me ask Senator Lott a question.

If they decide — what you would say, play this game — they send it up, he vetoes it, his veto is sustained and they send it up again — are Republicans going to keep voting to sustain the president's veto?

LOTT: It depends on what's in it. Do they make changes?

WALLACE: No, I'm saying if it's the same bill.

LOTT: Oh, yes, he will. Yes. Look...

SCHUMER: Let me just say, Chris...

LOTT: ... the time has come where we begin to get...

SCHUMER: ... this bill has...

WALLACE: Wait, wait. I'm letting Senator Lott answer the question.

LOTT: ... begin to get some control on the insatiable appetite for Congress, Republicans and Democrats, to get control of spending across the board.

And you know, I think it's got to begin here. It's got to apply to the Defense Department. It's got to apply to transportation. Everything has to be scrutinized and controlled.

WALLACE: Senator Schumer, you get the last 15 seconds.

SCHUMER: Our budget has a smaller increase overall, even including the war in Iraq, than any one of the six Republican budgets. And in addition, we pay for it. We are responsible.

But we're not going to stop progress. When children are not covered with health care, and we find a broad bipartisan way to get that done responsibly, with large amount of Republican support, we're going to keep at it until we get it done. That's what the American people want us to do.

WALLACE: Senator Lott, Senator Schumer, we want to thank you both for coming in today and talking with us.

LOTT: Thank you.