This is a rush transcript from "Hannity," July 7, 2010. This copy may not be in its final form and may be updated.

SEAN HANNITY, HOST: For months the Obama administration has orchestrated an all-out smear campaign against the state of Arizona and its new immigration law. And today Attorney General Eric Holder officially filed a lawsuit challenging the constitutionality of that law.

Now the Justice Department is calling on a U.S. District Court in Phoenix to stop the measure from taking effect on July 29th. Now the administration claims the law, quote, "Interferes with the federal government's authority to set and enforce immigration policy."

Now the only problem with that argument is that this White House has consistently neglected to enforce immigration regulations that are already on the books. And not surprisingly left-wing groups like the ACLU are hailing the lawsuit. But Republicans and even some Democrats were quick to come to Arizona's defense.

House Minority Leader John Boehner released a statement that said, quote, "The federal government shouldn't be suing Arizona. It should be helping Arizona."

And even Democratic congressman Harry Mitchell of Arizona voiced his disappointment with the Obama administration, calling the move political posturing.

Governor Jan Brewer characterized the suit as an attack on the people of Arizona saying, quote, "Today's filing is nothing more than a massive waste of taxpayer funds. These funds could be better used against the violent Mexican cartels than the people of Arizona".

So the stage is now set for one of the biggest legal battles on immigration in U.S. history.

Joining me now with reaction from the American Center for Law and Justice Jay Sekulow, and immigration attorney, Francisco Hernandez.

Guys, welcome back.



HANNITY: Good to see you.

All right, Jay, let's just start with the basics here. The administration is claiming this sort of undermines their authority. But they are not enforcing their law. So why shouldn't Arizona go forward with this?

SEKULOW: Arizona has the perfect right to defend itself. The idea here, of course, the federal government's arguing, Attorney General Holder is arguing that this is an area called preemption. The supremacy clause of the Constitution in essence.

But the reality is the Supreme Court has recognized - and Sean, they've done this consistently - that in fact states have concurrent jurisdiction on an issue like this. It's not affecting deportations. It's not affecting admissions to nationality within the United States, the naturalization.

It's simply saying existing law says if you're illegally here and it's found out you should be prosecuted.

Here's what the government says. Well, the federal government says if you do that, Arizona, you're putting more work on us because now we have to deal with this large number of illegal aliens in the United States.


SEKULOW: But the citizens of Arizona have the right to defend themselves. And I think the - I don't know what this district court is going to do, but I'll tell you what, I think at the end of the day the Supreme Court of the United States - the court is going to say Arizona was within its rights.

HANNITY: Yes, I concur. I agree.

Francisco, here's the issue. When you read the law, and I assume unlike Eric Holder, you probably have read the law.


HANNITY: Which I think was pretty outrageous for them to comment on it consider that he hadn't read it. Janet Napolitano hadn't read it. But here's the issue. All this law does is enforce and refer to and cite federal statute. What's the problem?

HERNANDEZ: Well, that's why it's such a waste of time for Arizona to do it. It was political posturing. So now they're saying the federal government is political posturing. They're both just -



HANNITY: Hang on one second.


HERNANDEZ: But it's true.

HANNITY: Hang on. If the federal government is not enforcing the law and the state of Arizona says, all right, we're going to - as Jay pointed out, this joint jurisdiction and there's precedent to back that up, what's so bad with Arizona doing the job that the federal government won't do? What's so bad about that?

HERNANDEZ: Well, because all of those inquiries into person's citizenship were already going on before Arizona ever passed the law. The law just gives it the color of authority. That's what makes it wrong when government gives the color of authority to something that shouldn't go on. But let's move beyond that. Let's talk about what we're going to do to solve the problem.

SEKULOW: Hold it. The color of authority?


SEKULOW: Wait a minute.

HERNANDEZ: Both sides agree -

SEKULOW: The law is the color of authority. What are you talking about? That's what the law is.

HERNANDEZ: OK. Then why did you need a law -

SEKULOW: The law establishes rules and regulations. That's what the law does.

HERNANDEZ: Then why did you need a new law? You had that sheriff out there that was already -


SEKULOW: You need it because it wasn't being enforced by the federal government. The federal government and -

HERNANDEZ: You already had that nutty sheriff out there bragging about how many deportations he had done and how many people he's turning over to -

SEKULOW: Well, can I ask you a question? If you're - if someone is here illegally, do you think that they should be - if they're here illegally, do you think a law enforcement officer on the federal or state level has the authority to send that individual back to their country of origin, yes or no?

HERNANDEZ: I think you're asking for mistakes. You're asking for mistakes against United States citizens -

HANNITY: Wait a minute.


SEKULOW: See, that's ridiculous. I'm the grandson of Russian immigrants. You know my grandfather had to do? Wait in line in Ellis Island. It took him 15 years to become a naturalized citizen. That's how you do it.

HERNANDEZ: Now you're on -

SEKULOW: And we have legal immigration here.

HERNANDEZ: Now you're on the money. Where's the line? I agree, Mr. Hannity. And you and I have talked about it. Create the line so people can get in line.

HANNITY: All right, wait a minute. The line -


SEKULOW: They're created. There is a legal system place. You can't -

HERNANDEZ: There isn't except for tennis players at the New York country club.

HANNITY: Wait a minute. Francisco, let me ask you. Go back to Jay's question. Jay's question is pertinent to the entire discussion.

HERNANDEZ: Let me answer it.

HANNITY: If somebody violates the law, does not respect the law or the sovereignty of the United States, do you think that law enforcement has a right to arrest them?

HERNANDEZ: I don't think local authorities have the resources or the knowledge -

HANNITY: I didn't ask you if they - stop, stop, stop.

SEKULOW: Do you think the federal government has? Let me ask you this -


HANNITY: Hang on a second. Wait. Wait. Francisco.

HERNANDEZ: I don't think the local authorities ought to get into that.

HANNITY: No, no, no.

HERNANDEZ: Absolutely not.

HANNITY: If somebody is breaking the law, what problem do you have with law enforcement doing their job?

HERNANDEZ: I'm fine with law enforcement doing their job. But you're talking law enforcement versus the federal job. The law - look, the law is going to be found preemptive. There's no question about that.

But it will be preempted, maybe not even by what the court says. It will be preempted by whatever action the federal government takes, by the Republicans or the Democrats.

Mind you - I'll remind you -

SEKULOW: That's not the way the law works.

HERNANDEZ: - that George Bush with a Republican Congress also tried it and with a Democratic Congress. So you guys, we've got to sit down and start from where we agree.

HANNITY: You see, you're doing it. Jay -


SEKULOW: You're talking immigration reform. That's not the same issue -


SEKULOW: - as whether Arizona can enforce its law and protects its borders from drug cartels going over the borders of Arizona.

HERNANDEZ: That's where the Arizona law came from.

SEKULOW: They have the right to do it. They have the right to do it. That's what the law establishes.

HERNANDEZ: They're going to be preempted -


SEKULOW: And federal government and the states have concurrent jurisdiction all the time. This is not unusual, at all.

HERNANDEZ: It is going to be preempted and it's going to be preempted by further legislation, not by the court.

HANNITY: All right. Let me just -

HERNANDEZ: It will take 10 years before it gets to the Supreme Court.


HANNITY: All right. There is FoxNews.com piece, illegal immigrants cost the U.S. - there's a Fair study that came out. $113 billion a year. Now they were talking about education, the criminal justice system, and the health care system.

Is that not unfair to the taxpayers of this country, Francisco, that they have to foot the bill for this?

HERNANDEZ: If it's true, and I would debate that point for a whole other show, but let them pay for it. Give them a payment plan. Let them pay for it. They'd be happy to pay for it.

HANNITY: Wait, so you want to charge -

HERNANDEZ: Give them a chance.

HANNITY: - illegal immigrants that we're not allowed to arrest, you want to charge them for what - what they cost in terms of services -

HERNANDEZ: Give them chance to get the treatment. Most county hospitals will no treat undocumented immigrants, that's certainly the case -

HANNITY: Excuse me.


SEKULOW: That's not true at all.

HANNITY: It's illegal. They're not allowed to do that.

SEKULOW: That's right.

HERNANDEZ: Absolutely.


SEKULOW: That's absolutely incorrect under law. That's incorrect. As a matter of law.

HERNANDEZ: Well - well, that's - well, we can sit here and talk about that. But let's put that aside. They'll pay for the health care.

HANNITY: You want to put everything - every time we make a good point you want to put it aside. The point - that's the point.

HERNANDEZ: Well, I'm not - I'm giving you that. If it's true that it costs money. But let's put them on a payment plan. Let's - look, put the -


HANNITY: Put the illegal immigrants on a payment plan but we can't arrest them. This is madness.

All right, I got to - we got to run.


SEKULOW: The cost to the taxpayers having to pay for this mess.

HANNITY: Put the illegal immigrants on a payment plan but we can't arrest them or get them -

HERNANDEZ: Our economy can't survive without them.

HANNITY: The economy can survive. There's 10 percent unemployment in this country.

HERNANDEZ: The best economists on both sides of the fence will tell you that they provide a net positive to the economy.

HANNITY: All right. We got to run.

SEKULOW: So we've gone from illegal immigration to the economy. There you go. All right.

HERNANDEZ: It's all about the economy, yes.


HANNITY: That's a great transition. I'd love to see both of you arguing before the Supreme Court.

Guys, thanks for being with us.

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