The following is a rush transcript of the April 4, 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: Back here on Capitol Hill, the talk is about what's next in the wake of the long battle over health care reform. Joining us to discuss that are two Senate leaders — from Phoenix, Jon Kyl, the number two Republican, and from Philadelphia, Democrat Arlen Specter.

Gentlemen, the unemployment numbers for March came out on Friday and they present a mixed picture, I think it's fair to say. A hundred and sixty-two thousand jobs were created, the most in three years, but unemployment stayed at 9.7 percent.

Senator Kyl, will Republicans support more economic stimulus such as more aid to states, extending unemployment benefits, more tax incentives for small business?

SEN. JON KYL, R-ARIZ.: There are really two questions inherent in that, Chris. We will have to do things like extending unemployment benefits because unemployment is so high, 9.7 percent, 15 million Americans unemployed. But that's not a job stimulator. So we will do those things to take care of the families that are suffering right now.

But in terms of stimulus, I think what Republicans will do is look very carefully at any more spending plans, because as it turns out we have spent hundreds of billions of dollars to very little effect.

Most of the jobs created are government jobs. Even in these latest figures that you noted, 48,000 of the jobs are temporary census takers, and it's not the kind of private sector job creation that we know will sustain an economic recovery. So I think rather than supporting spending to stimulate job creation, Republicans will prefer to look to things, for example, like tax relief. I noted that Christina Romer, one of the president's economic advisers, talked very glowingly, for example, about a zero capital gains rate for small businesses. How about applying that to all business? I think you'd see that help stimulate economic growth, for example.

WALLACE: So just briefly, Senator Kyl, if it's tax incentives, especially for small business but, as you say, maybe extended to other businesses, the GOP would be on board for that?

KYL: Depending on what it is. I think — my idea is if the president asked Congress tomorrow to give him a bill in a week that freezes all tax rates, doesn't even cut them, just holds them where they are and does not impose the $500-plus-billion in taxes in the health bill, I think you'd see the stock market skyrocket the next day because business would know that taxes will be stable and that they have the ability to raise capital and invest it in their businesses.

WALLACE: Senator Specter, I want to put up a chart that shows what the White House was projecting last year, what happened to unemployment with and without the $800 billion stimulus package that you voted for. As you can see from looking at this chart, the economy is performing even worse than they said it would with no stimulus.

Given that history, should Congress borrow — and that's what it amounts to, borrow — tens of billions of dollars more for economic stimulus?

SEN. ARLEN SPECTER, D-PA.: Chris, the stimulus may not have been all that we had hoped for. But I think there is general agreement that had the stimulus not passed we would have sunk into a 1929 depression.

I think a more important issue right now is what's going to happen on the currency talks with the Chinese. I think that American industry — the steel industry, for example — can compete with Chinese steel if we don't have the currency manipulation.

Now, the Chinese president is coming to the United States, and we do need concessions as to what is going to happen with sanctions on Iran. But the Chinese are not doing us a big favor in joining that. It's not in their interest to have Iran with a nuclear weapon, so that if we face up to the currency issue, the steel industry can provide a lot more jobs in my state and across the country.

The trade imbalance is now $337 billion Chinese imports to the United States, about a fifth of that from the U.S. to China. So I'd like to see our system on a level playing field before we talk about more federal subsidies.

WALLACE: But having said that, Senator Specter, I'm sure you know that the Treasury Department announced yesterday they're going to delay their report about whether or not the Chinese are manipulating their currency. Some people think that may have something to do with our effort when President Hu is going to be in the United States to try to get him on board for Iran sanctions. I take it you don't think that the Obama administration is doing the right thing there.

SPECTER: Well, I'm not too happy about a delay. If we get something specific from the Chinese, OK. But when we're looking out for the national interest on help on sanctions against Iran, let the nation pay for it instead of one specific — one specific industry.

We have a real problem with the Chinese. They are very shrewd and customarily they outmaneuver us. They take our jobs. They take our money and then they lend it back to us and own a big part of America. So let's watch exactly what we're — what's happening.

If we get something concrete, a delay might be OK, but we can't stand back and let them manipulate the currency and run us ragged on the economy.

WALLACE: Senator Kyl, the president and Democrats are talking about, even now that health care has passed, an ambitious agenda for the rest of this year.

During the health care debate when the Democrats talked about, and eventually ended up using, reconciliation to pass health care reform, you and a lot of other Republicans said that that might kill any cooperation on financial reform, immigration reform, energy reform.

Are you ruling out any bipartisanship in the Senate for the rest of the year?

KYL: No, not at all. And I think the comments that were made there represented some frustration on our part that essentially Democrats were doing it all by themselves, stiffing Republicans. And obviously, that doesn't promote cooperation.

But you mentioned regulatory reform, for example. There were bipartisan negotiations going on that looked like they might lead to somewhere. And then, for whatever reasons, the chairman of the Banking Committee in the Senate, Chris Dodd, decided to pull back and present just a partisan bill. Now, the understanding was that he was losing some votes on his far left by working with Republicans.

But it seems to me that on something like that, where there is an opportunity to work together — we all agree we need to do some things — it would be far better to try to do it with a broad middle coalition that does include Republicans.

And if that means you lose a few votes on the far left and maybe you don't get all of the votes on the right, so be it. At least you've done something the American people would like to see us do. But as of right now, that too seems to be drifting in a very partisan direction. And if it does, it will be hard to pass.

WALLACE: Well, Senator Specter, that's going to be one of the first items that comes to the floor after the Senate goes back into session. We're talking about financial regulations, tighter controls on hedge funds, tighter controls on exotic investments like derivatives, also a consumer protection regulator in the Fed. Do you expect to get bipartisan cooperation there, Senator Specter?

SPECTER: No, I do not. Only one Republican, Senator Corker, would step forward and negotiate with Chris Dodd. I think Senator Kyl paints a rosier picture about the prospects for bipartisan support than exists. A real effort was made.

If the Republicans would cooperate and participate — look here. On health care, not one of 41 Republicans in the Senate, not 1 of 177 Republicans in the House, would join in. I think there may be a big push by the public to demand bipartisanship. You see everybody's approval rating falling.

Congress is in great disrepute by the American people, and with good cause, because of the gridlock of bipartisan bickering. And I think that many Republicans don't like to see their numbers go down.

And if there is enough public demand — look here. The Democratic Party for a long time has been controlled, as has the Republican, by people on the fringes. But when everybody's rating goes down because of the bickering and gridlock, that may be a real impelling factor to produce some bipartisanship cooperation.

WALLACE: Senator Kyl — let me bring in Senator Kyl, if I may, Senator Specter.

As opposed to health care reform, at least in the polls, isn't financial regulation a political winner for Democrats? And if the Republicans continue to oppose the bill that the Democrats are going to present, you know they're going to portray you as protecting the fat cats on Wall Street at the expense of Main Street.

KYL: Well, let me go back just one step first. Republicans reflected the public will with respect to health care. Every poll showed significant opposition to the health care legislation. By 2-1 the American people said stop it from passing. We tried to do that. But the Democrats were able to jam it through.

On regulatory reform, there is broad support in the public. Even though there's not a good understanding of exactly the kind of complicated regulatory reform that's necessary here, there's an understanding that there are things we need to do. And Republicans believe that just as much as Democrats.

This was not a matter, as my friend Arlen Specter said, of Republicans refusing to negotiate. Each member of the Banking Committee was assigned to, in effect, a subcommittee to work on solving a specific problem.

WALLACE: I don't want to get too far...

KYL: They were made...

WALLACE: ... into the weeds here, Senator Kyl.

KYL: Well, just — they — yeah, OK. They were making significant progress when, at a certain point, Chris Dodd decided to pull the plug and go a strictly partisan route.

I still believe there is a substantial opportunity for bipartisan working together to resolve the regulatory reform issue....

(CROSSTALK)

WALLACE: Gentlemen, I want to switch subjects on you. You are both distinguished members of the Senate Judiciary Committee, and there's widespread speculation, in part fueled by interviews that the oldest Supreme Court justice, John Paul Stevens, gave to both the New York Times and the Washington Post today, that he may retire soon, may retire before the end of this term, which means, of course, that there will be another vacancy on the highest court.

Senator Specter, if there is a vacancy, do you have some thoughts about the type of person that President Obama should nominate? Do you have some thoughts about the specific person he should nominate?

SPECTER: I hope to begin a little earlier, that Justice Stevens does not retire this year. I think the gridlock in the Senate might well produce a filibuster which would tie up the Senate about a Supreme Court nominee. I think if a year passes, there's a much better chance we could come to a consensus.

I think we need someone who will step into Justice Stevens' shoes, who will be very tough on the issues of executive power.

A federal court this past week declared the warrantless wiretapping unconstitutional. I think we need the kind of balance that Justice Stevens has provided to offset the majority on the court which is in favor of executive power.

We need someone with strong academic and professional credentials. I'd like to see, for a change, someone appointed to the Supreme Court with a little broader background. We have enough circuit justices — ex-circuit justices on the Supreme Court.

WALLACE: Do you have a nominee, Senator Specter?

SPECTER: I do, and I hope to see the president at the opening of the baseball season tomorrow, and I intend to tell him my thoughts on that. But I'm going to reserve it for the president instead of Fox News, if you don't mind, Chris.

WALLACE: Well, I mind, but there's nothing I can do about it. We don't have subpoena powers.

Senator Kyl, your thoughts about a nominee for the court? And are you willing — because Senator Specter brought it up, are you willing to pledge right now that the GOP will not filibuster whoever the president nominates?

KYL: It would — it will all depend on what kind of a person it is. I am a little troubled by what Arlen said. He wants somebody who — and then he named two or three positions that he wants that person to take — to be tough on executive powers, for example.

I want a judge who will read the law and declare it in each case that comes before him or her as it should be — in other words, don't have somebody coming in with preconceived attitudes — "I'm going to be tough on the executive," or, "I'm going to be for the little guy," or whatever their preconceived attitudes are. We've had too much of that.

What we want is a judge who will read the law in any particular case - - and as Justice Roberts said during his confirmation, if the law is on the side of the little guy, the little guy wins. If it's on the side of the big guy, the big guy should win. And that's what we want in our judges.

I think the president will nominate a qualified person. I hope, however, he does not nominate an overly ideological person. That will be the test. And if he doesn't nominate someone who is overly ideological, I don't think — you may see Republicans voting against the nominee, but I don't think you'll see them engage in a filibuster.

WALLACE: Well, let me ask you — and we've only got two minutes left, Senator Kyl, so I'm going to ask you for quick answers on both of these. You and most other Republicans denounced Democrats a couple of years ago when they were filibustering judicial nominees.

And at that point, you said this, and let's put it up on the screen. "It's never been the case until the last two years that a minority could dictate to the majority what they could do." So why was filibustering judicial nominees wrong then but it might be right now?

KYL: Well, it is wrong and it shouldn't be done, but I think you would agree that if only one side is permitted to do it, the Democrats and not the Republicans, then you have a very unfair system.

I would prefer to go back to the situation where it is not done by either party, but the Democrats won that fight. They filibustered Miguel Estrada. He never got on the court. Seven other circuit nominees. So what we need to do is, I think, apply the rule that the Gang of 14 game up with a couple years ago that you don't filibuster except in extraordinary circumstances, and I'm willing to live by that general rule.

WALLACE: And less than a minute left, Senator Kyl, bad week for the Republican National Committee — the stories about tremendous spending on private planes and luxury hotels and a bar tab at a sex- themed nightclub, and now we have Karl Rove and Tony Perkins of the Family Research Council saying don't give money to the RNC.

How troubled are you by the situation there? And should RNC chairman Michael Steele step down?

KYL: Well, I'm not in the position of the people who elect Michael Steele to either say he should step down or not. But this kind of thing has got to stop or they won't get any contributions. The people that contribute to the committees, both Democrat and Republican, want to know that their money is well spent for the cause, and it needs to be that way.

WALLACE: Senator Kyl, Senator Specter, we want to thank you both so much for talking with us today. Please come back, gentlemen.

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