The following is a rush transcript of the July 11, 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: With a lot of ground to cover, let's turn to our first guest, Obama senior adviser David Axelrod.
And welcome back to "Fox News Sunday."
DAVID AXELROD, WHITE HOUSE SENIOR ADVISER: Thanks, Chris. Good to be here.
WALLACE: Let's start with the latest news. BP is replacing the containment cap on its runaway well. The company hopes to have it done Monday. As you can see from the live spill cam, until then the oil is gushing up into the gulf.
It also hopes, BP, to -- is working to finish its two relief wells. How confident are you that they will have this spill contained, stopped, by the end of July?
AXELROD: Well, we're reasonably confident, but obviously this thing is uncharted waters, no pun intended. Our scientists, Dr. Chu and others, have been spending a lot of time with them around this decision to take the cap off.
And by putting this new cap on they're going to expand the capacity to get 80,000 barrels a day, 80,000 barrels out of this -- out of this well. So that's going to be significant.
WALLACE: But you think between that and the relief wells, it's reasonable to expect that they will have stopped...
AXELROD: That is what...
WALLACE: ... stopped the spill by the end of July?
AXELROD: That -- look, the hope is that we will be containing all the oil that comes out of that well by the end of July. But it's -- obviously, to kill the well will take a little bit longer. The goal, though, is to contain the well so that there's no more oil leaking into the gulf.
WALLACE: And that could happen in the next few days?
AXELROD: Well, the process is going to take seven to 10 days to get this cap on. There's another boat that's coming in that will have a larger capacity and so we'll expand our capacity in the interim, because there's still some oil being collected now, even with the cap off. We will -- we'll expand our capacity even in the interim. And that should happen in the next couple of days.
This also ought to, by the way, help if there's hurricanes or bad weather in the gulf. It will help create a situation where if a storm comes, they don't have to leave the area and uncap the well.
WALLACE: The administration has gone to court twice in the last few days to defend its ban on deepwater drilling, and twice in the last few days judges have ruled against you. Meanwhile, one company is -- has already announced it's going to move its oil rig from the gulf to Egypt.
Don't you run a considerable risk of killing this industry and losing thousands of jobs and you've got two judges saying you have not proven the need for this ban?
AXELROD: Well, understand what the ruling was of the appellate court, Chris. The ruling of the appellate court was since no one is currently drilling, it wasn't timely for us to ask for, you know, this moratorium, so...
WALLACE: But the original judge basically said you haven't proven the need for the ban.
AXELROD: Well, we'll see what the appellate court says. But the important thing is this. We want -- the president has -- does not want to stop this drilling. What he wants to do is make sure that something like this catastrophe doesn't happen again.
And until we run through the scenario here as to what happened and find out what needs to be done with these other wells -- there are 30 deepwater wells there, including four that are being run by BP -- it is -- it's our responsibility to make sure that it's reasonably safe and that if there is...
AXELROD: ... if there is another spill that there is the capacity to deal with it in a much more efficient way than is being dealt with now.
WALLACE: But does it worry you when you see one oil driller already moving...
AXELROD: Well, these are rented rigs and they go from place to place. It's not a -- it's not an optimal situation, but obviously we're dealing with the greatest environmental catastrophe of all time. It's put so many people out of work. It's been a tremendous tragedy for that region. We don't want a repeat of it because we're imprudent.
WALLACE: All right. The administration also went to court this week to sue the state of Arizona over its crackdown on illegal immigrants.
But let's take a look at the situation on the ground. There are an estimated 500,000 illegals in Arizona. Phoenix is now called the "kidnaping capital of the U.S.," with a surge of abductions tied to drugs and human smuggling. And the president is telling the state, "You can't defend your own borders?"
AXELROD: Well, first of all, Chris, let me just say that the -- there was a report in the Arizona Republic that challenged some -- the situation is not -- it's not good. And obviously, there's great frustration there, as there should be.
But we have greatly increased the presence of manpower, of equipment, of technology along the border. We have concentrated on the criminal elements there.
One of our concerns about this -- about this law is that it will divert our efforts to go after criminals and people who are -- who are inflicting harm on the community in the ways you suggest. So that's the issue here.
WALLACE: But -- but...
AXELROD: We can't have -- we can't have a patchwork of 50 states developing their own immigration policy. I understand the frustration of people in Arizona. They want the federal government to step up and deal with this problem once and for all, and that's what we want to do.
But no administration has been tougher on enforcement. No administration has gone after employers the way we have who have broken the law by hiring these workers.
WALLACE: But, Mr. Axelrod, there are some facts which seem to contradict what you just said about how tough the administration has been. Let's put them up on the screen.
The president recently announced he's sending 1,200 more National Guard troops to the border. That's less than one soldier per mile. And you have frozen spending on a virtual fence spending a review.
In fact, Mr. Axelrod, your new homeland security budget actually cuts spending for border enforcement.
AXELROD: Chris, we have more manpower there than ever before, more equipment -- drones, helicopters, airplanes. We're doing this in a smart and more efficient way. And we're producing better results than have ever been produced -- than have ever been produced before. So you know, I challenge your assertion.
WALLACE: But as I say, when you -- when you announced...
AXELROD: We have 20,000 -- there are 20,000 agents on the border, and now another 1,200 National Guard. That's more than it's ever been.
WALLACE: But that's...
AXELROD: That's double what...
WALLACE: But that's less than one per mile.
AXELROD: ... has been there since 2004.
WALLACE: It's less than one extra soldier per mile.
AXELROD: The question is what do you need to do to be effective here. We've brought drones, helicopters, planes, and we've had more success. There are -- there are hundreds of thousands less -- 23 percent fewer people crossing the border now, a much greater focus on smuggling, and drugs, and guns, which is the greatest concern that people have in Arizona.
And we want to continue with those efforts, and we don't -- and we can't do that if there's a patchwork of laws that divert resources where they dilute those efforts.
WALLACE: The president went around the Senate this week and announced the recess appointment of Donald Berwick to run Medicare and Medicaid. The White House complained about Republican stalling as a reason for this.
But, Mr. Axelrod, the fact is, as you well know, the Democratic chairman of the Senate Finance Committee had not even scheduled a confirmation hearing on Berwick, even though his nomination was announced several months ago.
AXELROD: Chris, look. Let's look at the history of what's happened during this administration. We have 140 or more appointees who are still waiting for confirmation for months and months and months and months. Some have had hearings. Some have not had hearings.
Even after hearings, we've had months of delay on the floor where we've had to invoke cloture against filibusters by Republicans, even on...
WALLACE: But in Berwick's case...
AXELROD: ... even on nominations...
WALLACE: ... you haven't even had a hearing.
AXELROD: ... even on nominations...
AXELROD: ... that the Republican...
WALLACE: But in Berwick's case, you...
AXELROD: ... that the Republicans ended up voting for.
WALLACE: But, Mr. Axelrod, in Berwick's case you hadn't even had a nomination. The White House...
AXELROD: No, no, we have a nomination.
WALLACE: I mean, you hadn't...
AXELROD: That nomination's been there for four months.
WALLACE: You hadn't even had a -- you hadn't had a -- right, you've had a nomination for four months. There hadn't even been a confirmation hearing.
AXELROD: Look, it's very...
WALLACE: You hadn't even finished the paperwork on this fellow.
AXELROD: It is very, very clear this nomination -- and this has been signaled by folks on other side of the aisle -- that this nomination was going to be one that was going to be dragged on and on and on.
And with all the challenges facing our health care system, it is vitally important that we fill this position, and so we moved forward.
WALLACE: Isn't the real reason that Berwick got a recess appointment because you didn't want to defend some of his controversial statements?
AXELROD: Absolutely not.
WALLACE: Let me -- let me just put them up on the screen and then you can respond. Here's Berwick on the National Health Service of Britain. "I am romantic about the NHS. I love it." Here's Berwick on government involvement in health care. "The decision is not whether or not we will ration care. The decision is whether we will ration with eyes open."
The fact is Berwick will have a budget bigger than the Pentagon, and he favors government controls on health care.
AXELROD: The fact is that you pulled quotes out of longer pieces. He was also quite critical of elements of the British system. And when he was talking about rationing...
WALLACE: I am romantic about the NHS?
AXELROD: ... when he was talking about -- he was quite critical of aspects of the British system. He is not coming to implement the British system. And if he were, I don't think Mark McClellan, who was -- who had the same position under George Bush, or Mr. Sculley, who had the same position under George Bush, or the American Medical Association, or the American Hospital Association, or, by the way, the AARP would be warmly endorsing his candidacy as they are.
They've read the full record. They understand his record of improving patient care, and so they've endorsed his candidacy, and I think that he's going to serve the country with distinction.
WALLACE: Finally -- we have about a minute left -- the economy. Unemployment is still 9.5 percent. Three million Americans have lost their jobs under President Obama. And let's put up the numbers from the last quarter.
Private sector employment -- as you can see, in the last quarter, private sector job growth has dropped sharply. Question: Can you honestly say the Obama economic plan is working?
AXELROD: Well, yes, because if you look at where we were when he took office -- remember, we lost 3 million jobs in the six months before he took office. We lost 750,000 jobs in the one month of January when we made the transition from President Bush to President Obama. Our economy was losing 6.7 percent -- was shrinking by 6.7 percent in the first quarter of 2009.
And today, the economy is growing. We've had six straight quarters of private sector growth. Is it enough? No, it's not enough. We have to keep moving forward. But what we don't want to do is go back to the same policies that created the disaster in the first place, and this is really what the debate is about.
WALLACE: Mr. Axelrod, we want to thank you so much for coming in.
AXELROD: Thank you for having me.
WALLACE: Don't be a stranger.
WALLACE: Please come back.
AXELROD: I'd like to.
And joining us now is the Senate's number two Republican, Jon Kyl, who's in his home state of Arizona.
Senator, you just heard David Axelrod defend the lawsuit against Arizona. And the fact is that the Obama White House does have a story to tell. Let's put up some statistics.
Since the administration launched its Southwest Border Initiative, seizures of illicit cash, firearms and drugs were all up last year between 14 and 22 percent, and the number of illegals in Arizona is estimated to have dropped 18 percent. Question: Hasn't this president improved border security?
SEN. JON KYL, R-ARIZ.: There have been improvements. There have been additional people sent to the border. And nobody would deny that there is a federal government effort going on here. But it's not enough, because you still have about a half of a million illegal immigrants crossing the border every year. So the fact that you've done more doesn't mean that you've done enough.
And for the federal government to challenge this law on the basis that it has preempted the area and therefore the state of Arizona needs to butt out I think is wrong. It would be one thing if the federal government had controlled the border already, but it hasn't.
And frankly, what Arizona is trying to do is to lend its law enforcement officials to the effort so that they can then, in some cases, apprehend illegal immigrants, turn them over to the federal government. And then it's up to the federal government to decide whether they want to accept them, whether they want to detain them, whether they want to remove them to their country of origin or what to do with them.
So it's not really a matter of preempting the federal law. It's simply the state of Arizona providing some additional law enforcement assistance for the federal government.
WALLACE: But, Senator, can you really ever control the border? Won't illegals continue to cross the border so long as the demand for jobs from people in Mexico vastly exceeds the number of legal jobs that they can get in this country? Don't you -- in the end, aren't you going to have to have a comprehensive plan with a guest worker program to solve this problem?
KYL: Chris, I supported exactly what you're talking about. We do need a temporary worker program. But the labor unions in this country that -- at least some of whom were willing to support that three years ago are no longer willing to do it.
And you're right, a temporary worker program would have to be a part of any comprehensive immigration reform, and there isn't support for that in the Congress right now. But even if you had that, you can still -- you're still going to have problems with people trying to cross.
And yes, the answer is you can gain operational control of the border, even if we don't have such a program. We've demonstrated that in certain areas of the border. For example, the Yuma sector in Arizona has a very low immigration -- illegal immigration rate now because of the combination of things that they've done on that part of the border.
The Tucson sector, on the other hand, you still have about a half a million people coming through every year. About a quarter of a million are apprehended every year.
WALLACE: Senator, while you've been on recess this past week -- I don't mean just you, but the entire Senate -- the president named Donald Berwick to run Medicare and Medicaid. You just heard my discussion of that with Mr. Axelrod.
For all the howling from the GOP, the fact is President Bush made 171 recess appointments during his eight years in office.
KYL: Well, I'm not going to argue about what President Bush did. This nominee should not have been recess appointed for two reason.
First of all, he is not the right man for the job. You were correct in your questioning. He believes in rationing of health care. Had his nomination come up during the health care debate, can you imagine the hue and cry that would have occurred? I think that's why the president delayed making this nomination.
And then as you also correctly noted, chairman of the Senate Finance Committee, Max Baucus of Montana, has been highly critical of the president's appointment because he hadn't even scheduled a hearing for this nominee yet.
Clearly they were anticipating a big fight, but that's no reason not to pull this out -- or put the nominee out to the public to have to defend his position. I just don't think the administration wanted to have to do that.
WALLACE: The president was on the campaign trail this week and he was trying out new lines of attack against Republicans, and he tried to frame the debate as a choice between his agenda and the Bush GOP policies, which he said drive -- drove the economy into a ditch over the last -- previous eight years.
Clearly the polls indicate support for this president is waning. On the other hand, those same polls indicate that voters still don't like what President Bush and the Republicans during those eight years did for the economy.
KYL: I don't think that's right, Chris. The American people strongly support the biggest positive impact that you could have on the economy, the so-called "Bush tax cuts" of '01 and '03. And those tax cuts are set to expire at the end of this year.
The president had said that he would protect middle class taxpayers from those tax rates going back up at the end of this year. So far he has not chosen to do so. That's going to be a huge hit to the economy.
And you can't blame President Bush for everything, by the way. That which occurred on Wall Street, with Fannie and Freddie and so on -- I mean, we can have a debate about that all day, about who is really responsible. But I -- you can't put that at the foot of President Bush.
WALLACE: But, Senator...
KYL: The reality is...
KYL: Yes, go ahead, Chris.
WALLACE: Senator, let me just break in, because I want to pick up on exactly the point that you just brought up, particularly, the Bush tax cuts for the wealthy. That is part of the big Republican growth agenda, let's keep, not let expire, the Bush tax cuts for the wealthy.
The fact is those would cost $678 billion over 10 years. At a time Republicans are saying that they can't extend unemployment benefits unless you pay for them, tell me, how are you going to pay that $678 billion to keep those Bush tax cuts for the wealthy?
KYL: Chris, that is a loaded question. The Bush tax cuts applied to every single American. In fact...
WALLACE: I'm talking about the Bush tax cuts for the wealthy, sir.
KYL: Well, OK. So let's, first of all, start with those that don't apply to the wealthy. Shouldn't those be extended? Shouldn't you have a 10 percent tax bracket so that people don't have to pay income taxes who don't make very much money? Shouldn't you do away with the marriage penalty? Shouldn't you have the child tax credit at $1,000 per child, and so on? All of that goes away.
Now, with respect to those that apply to the upper brackets, it's very clear that you're going to clobber small business because the bulk of small business taxes are paid in the top income tax rate.
WALLACE: But, sir, how are you going to -- because we are running out of time, how are you going to pay the $678 billion just on the tax cuts for people over -- making more than...
WALLACE: ... $200,000 a year?
KYL: ... you should never raise taxes in order to cut taxes. Surely Congress has the authority, and it would be right to -- if we decide we want to cut taxes to spur the economy, not to have to raise taxes in order to offset those costs.
You do need to offset the cost of increased spending, and that's what Republicans object to. But you should never have to offset cost of a deliberate decision to reduce tax rates on Americans.
WALLACE: Finally, a couple of personnel questions. And as I said, we have less than a minute left, sir. How will you vote on the nomination of Elena Kagan to the Supreme Court?
KYL: I'll let you know a week from Tuesday when we have the markup or executive session in the judiciary Committee.
WALLACE: And should Republican Party chair Michael Steele step down for his remarks in which he called Afghanistan "Obama's war" and said we had no place being there?
KYL: I think the chairman's remarks were wrong. I think he somewhat acknowledged that later. And he needs to stop making comments that create this kind of fear. His job is to raise money and support the state parties around the country so that we can have a fair shot at winning Republicans - - for Republicans winning this next November.
WALLACE: Should he step down, sir?
KYL: That's a decision that the committee that elected him has to make, and I'm not going to get in the middle of that.
WALLACE: All right. Senator Kyl, we await your decision on the Kagan nomination and we'll be waiting for it a week from Tuesday. Thank you so much for coming in and talking with us today, sir.
KYL: Sure, Chris. Thank you.