This is a rush transcript from "On the Record," Nov. 18, 2010. This copy may not be in its final form and may be updated.

GRETA VAN SUSTEREN, FOX NEWS HOST: Congress and the president are supposed to run the country and make the tough decisions. They don't always do it. And worse, sometimes they cause the problems, which is why our next two guests are so important.

Republican Alan Simpson and Democrat Erskine Bowles are the co-chairs of President Obama's debt commission created to come up with a plan to dig us out of our mess since Congress can't seem to get us out of it. They went "On the Record."

(BEGIN VIDEOTAPE)

VAN SUSTEREN: Mr. Bowles, let me start first with you. Is your recommendation binding in any way?

ERSKINE BOWLES, CO-CHAIR, PRESIDENT OBAMA'S FISCAL COMMISSION: If we get 14 votes it has to go to the Senate, and the Senate has to give an up or down vote, then it goes to the House. So only if we get 14 out of 18 votes.

VAN SUSTEREN: So if this is a great idea and this plan is a winner, with your work you can sent it to Capitol Hill and it runs into a wall, right, Senator?

ALAN SIMPSON, CO-CHAIR, PRESIDENT OBAMA'S FISCAL COMMISSION: Won't be any question about that. We don't hold any false hopes. I tell you one thing, we are pleased at the general reaction of the public that finally somebody quit b.s.-ing them and put something on the table that slaughtered every sacred cow in the field.

They are tired of the politician who sits here or with you, then you ask them directly what would you cut in spending? Well, waste, fraud, abuse, foreign aid, and earmarks. Great, that will get you five percent. Now what are you going deal with, pal? Well, let's see. The Lawrence Wilkes Society thing in North Dakota -- forget it.

You got to go where the meat is. And the meat is Medicare, Medicaid, Social Security, not balancing the budget on the backs of Social Security, just making it solvent for 75 years. Boy, this is tough duty.

VAN SUSTEREN: A number of things the American people are seizing upon. One is the mortgage interest deduction. Some think I don't want to lose my interest. But is there a way people with pick up that deduction another way?

BOWLES: Absolutely. There are $1.1 trillion dollars of what Al and I call tax earmarks. That's compared to $16 billion in spending. 1.1 trillion of tax earmarks into the tax code.

We wipe those out. We take the rates down to eight percent up to $70,000, 14 percent up to $210,000, and 23 percent above that. And even better, we take the corporate rate down to 26 percent so America is the best place to start and grow a business.

VAN SUSTEREN: What do we get out of this? Give me an idea of what you expect to happen? And if everybody goes along, what is our country going to look like?

SIMPSON: I would expect the entire scene would change completely. When we go with whatever president to visit and participate in sessions all over, they will say the United States of America actually the guts to correct the course, which is going to be as suddenly dramatic and drastic as would happen in Greece, Ireland, Portugal, or Spain, and they did something.

By George now their bonds are worth something. But I tell you, if you don't -- just do nothing, this country will head into the bow-wows.

VAN SUSTEREN: Everyone who looks says yes we have to do something. But no one wants to lose mortgage interest, Social Security or get a reduction in Medicare, Medicaid. In terms of what are proposing, who is going to pay for this? Someone has to pay for this.

BOWLES: Everybody is going to pay. There are no sacred cows here. We are cutting defense, nondefense discretionary spending. We are cutting Social Security and we are cutting health care. You got to cut it all nothing can be left off.

And we are taking these tax expenditures just spending in the tax code and taking $100 billion dollars of that a year applying it to reduce the deficit. It is the only way. This problem is real. The solutions is very painful and everybody's to be on the table.

SIMPSON: When you flash words of Social Security. We are taking care of the lower segment of society, underprivileged, vulnerable, we give them 125 percent of poverty. That takes a little off what we're trying to do. We also say over 80, we have a cut in for 80 to 85, takes a little out.

But, we are changing the retirement age. You've got to go there. We say raise the rate to 68 age in the year 2050. If you can't move it one month every two years when the life expectancy is 76.

So when the whining and the groaning starts we say don't touch it, the third rail. In 2037, you waddle up there at 65 to get your check and it will be 22 percent less, and there isn't a single person from the right and left who challenges those figures.

VAN SUSTEREN: I take it you took into consideration health care costs. How were you able to do that? I imagine it is complicated. And to what extent are we going meet the goals of the program assuming that the health care bill doesn't get thrown out?

BOWLES: We made tough choices. We took $700 billion dollars worth of cuts in health care over the next eight, nine years. And it wasn't easy, but you have to do it. This is not one of those things that you can spare anything.

Admiral Mullen, chairman of the Joint Chiefs of Staff said just this week that if we don't do something about in national debt, it is the biggest threat we have to our national security. You talk to any business guy, they know that if we keep building up this debt they are not going to get the capital to grow their business.

You think about people that know we to complete in a global marketplace and invest in education and infrastructure and high speed research, they know there will be no money left for that if we keep building up this debt. We'll have $1 trillion worth of interest expense alone in 2020 if we just do nothing. That is unsustainable.

VAN SUSTEREN: Let's take a family in my hometown, three children and the income to the family is $100,000 a year. If what you propose becomes the law, how will affect that family? Let's say they're in their mid-40s right now with three kids in their early teens.

BOWLES: They would, if our plan went through as is, they would lose all of their tax deductions. But their tax rate would be in the 15 to 16 percent area total taxes. That's it.

SIMPSON: Don't forget, the largest people who benefit from these glutted tax earmarks are the top 1 percent of income people in the United States. They are the ones that have the money to hire the lobbyists to go to work in this and this and nobody has ever looked after they go on the books.

We were stunned when we found out it was $1 trillion, 100 billion a year that sucks out of the --

BOWLES: The top 400 taxpayers in America pay an average income tax of 16.6 percent. That's a lower rate than my secretary pays.

VAN SUSTEREN: Is that because of the earmarks in the tax code?

BOWLES: All of the earmarks in the tax code.

VAN SUSTEREN: How did they arrive in the tax code?

BOWLES: All the special interests were able to beat them out of the law.

SIMPSON: "Going to Gucci Gulch," that's what they used to call it when the finance committee was doing their work. They would sit there and smirk and laugh and say we'll be in there in a couple of hours and we'll get this in for this industry or this guy. And 16 percent, and they should be paying 36.

But the little guy, the $100,000 guy, he isn't using a lot of those deductibles. He can't, it doesn't make any difference to him. But the big cats use it.

BOWLES: You still got to cut spending. We cut $3 for every $1 in he due in revenue. You've got to cut spending, and you can't spare any cow. It's all through the government, we have to take it down or this country will be bankrupted.

SIMPSON: If somebody shrieks they are raising taxes, we are saying your rates are going to come down clear across the board. I mean, there is no way that anybody can fake this anymore and say that it's a tax increase. It's not.