The following is a transcribed excerpt of "FOX News Sunday" for November 7, 2004.

(BEGIN VIDEO CLIP)

PRESIDENT GEORGE W. BUSH: I earned capital in the campaign, political capital, and now I intend to spend it.

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CHRIS WALLACE, FOX NEWS: That was President Bush emphasizing that Tuesday's results have empowered him to tackle some tough issues.

For help, he'll turn now to the Republicans in the House of Representatives, where the GOP has increased its majority to 30 seats, with three seats still undecided.

And he'll rely on our exclusive guest this morning, the speaker of the House, Congressman Dennis Hastert.

Mr. Speaker, welcome. Thanks for coming in today.

U.S. REPRESENTATIVE DENNIS HASTERT, R-ILL.: Thank you very much. Great to be here.

WALLACE: As we pointed out, the president laid out this week the broad strokes of his agenda for a second term. Is there one top item that Congressional Republicans would like to add to that agenda?

HASTERT: Well, you know, what we — I think the president and the Congress is fairly well in sync. But we need to do something to hold down health-care costs, to expand people to get health care that don't have insurance today. There's some things we can do that the president's talked about — malpractice reform and tort reform. I think we have to do that.

The president's talked about working on Social Security. He's promised to do that. And I think that there are some good thinkers. We have people like Paul Ryan and Clay Shaw and others who've thought about this a lot. And there's some good ways to do that without disenfranchising, without threatening people's future, and especially keeping the promise to our seniors.

WALLACE: Let me pick up on Social Security because the president says that he wants to allow younger workers to take some of their payroll taxes and to put them off into private personal savings accounts.

The big concern, the big question that really didn't get answered by either candidate in this campaign is, how do you pay for it?

I mean, let me just explain. The money that workers pay in now goes to pay for the retirees now. If they're taking some of their money out, then there's talk about perhaps a $2 trillion shortfall.

HASTERT: That's right, in our transition, whatever you want to call it.

The problem is, if we don't fix Social Security and make sure that we have a balance in there so long-term future recipients — and I'm talking about three or four decades out, people who are just starting to work now who will receive Social Security in years to come — that there's something there for them and it doesn't break the country.

And as we see the disproportionate share of workers diminishing and retiring, the baby boomers going into retirement, we have to look at this and make sure that Social Security does stand up.

You know, I don't pretend to know all the nuances of the financing of it, but we have some pretty good people. I know, again, I talked about people who are — Paul Ryan from Wisconsin, who really thought through this issue. And there's some things we can do that we need to explore.

And we need to make sure that Social Security is there for everybody in the future. And if some people can get an ownership piece, 2 percent of what they pay in, for instance, get an ownership, I think this gives them a legacy in the future, that all this doesn't come out of the taxpayers' pocket.

WALLACE: One of the other things that the president is calling for is broad tax reform. And I want to look at what you have said about this in your book called "Speaker."

Here it is: "For us to return capital and jobs to the United States, we're going to have to change our present system and adopt a flat tax, a national sales tax, an ad valorem tax or a VAT tax. In my view, that would bring capital and jobs back. And it's one of the most important things we can do over the next few years."

Mr. Speaker, are you serious about doing away with the federal income tax?

HASTERT: Well, look, we need — I think people have said it on this show just a few minutes before — that the income tax we have today, it costs American taxpayers $250 billion every year just to prepare their taxes, just to get their taxes ready to pay. That's a huge amount.

That our tax system gives us a great disadvantage when we want to sell our products overseas, the European Union and Japan and other places. Because of their tax system, we have imputed costs in their taxes, into our products. They drop their taxes off at the border.

We need to look at this. There needs to be a national debate. I mentioned four or five different types of taxes that we might want to look at. But it has to be a national debate.

WALLACE: But you're not talking about tax simplification. You're talking about doing away with the income tax.

HASTERT: I'm saying there has to be a reform, a change to make this tax system simpler, better. And we need to look at all alternatives.

You know, when we get done looking at it, maybe we can say we can't do it. Maybe the entrenched groups that have their pieces in the tax bill won't let that happen.

But I think we need to have a long, serious look at it. And it needs to be a national debate. You can't push anything like this down somebody's throat, the American public's throat. You have to make sure that they understand it and they agree to it.

WALLACE: Do you think that it's possible to have broad reform in the second term of the president?

HASTERT: I think this is the only time in generations that you might have a chance to be able to do it.

WALLACE: I want to switch to another subject, social issues.

What do you think of Senator Arlen Specter? You've never been shy about expressing opinions about what's going on on the other side of the Congress. What do you think about Senator Specter defending Roe v. Wade and saying he doesn't think that any pro-life justices can be approved?

HASTERT: Well, you know, I sometimes do take a shot at the Senate. But I know that there are different personalities over there and different traditions over there.

But I just would think that, before somebody lays down the line in the sand, that they would look at what this election said. And I think this government is bigger than any one individual.

And I think the Senate, in its new majority, really needs to look and evaluate what they want to do. And for any one person to stake out and say we're not going to do this or not going to do that I think is just wrong.

WALLACE: There's a lot of talk now about trying to do something to bridge the partisan divide in this town. How far do you think Republicans should go to reach out to Democrats?

HASTERT: Well, you know, I think — I heard Nancy Pelosi yesterday on her...

WALLACE: We should point out, the House leader of Democrats.

HASTERT: Yes. And said, oh, they'll work with us, but there are certain Democratic principles that they won't bend at.

You know, I think there's a lot of things that we can work with. I think, in order to do real reform of how we tax people, it needs to be a bipartisan view. I think to do something on Social Security needs to be bipartisan.

But, you know, in the past, we've had some folks who say, well, I'd rather fight this issue for political purposes than rather just sit down and really try to work and find a solution in a bipartisan way.

If that's the attitude that we have to deal with, then we have to go through and work through the process.

WALLACE: But I guess I'm asking...

HASTERT: But it's more difficult to do that. But I think there's a lot of good people on both sides that really want to work together, and there are opportunities to do that.

WALLACE: Do you think the president and Republicans should compromise the agenda that they brought to the voters and were elected on, in the interests of uniting?

HASTERT: I don't want to say you have to compromise your ideals and your values. I think that there's ways that we can sit down and talk about some of these things, because I think on some of these issues, some of these issues, there is a mutual interest to get them done.

I think to preserve Social Security into the future, you can demagogue it and you can say, well, we're not going to move or change anything, but the reality is in two or three decades, you can't sustain Social Security the way it's going.

We need to find solutions, and we should do it on a bipartisan basis.

WALLACE: Mr. Speaker, you've had your differences with billionaire George Soros. It turns out that he spent over $25 million trying to beat George W. Bush and the Republicans. What did he get for his money?

HASTERT: Well, I just read an article or just a quip on one of the local news magazines saying he's going to look for a monastery someplace. That would be unfortunate if he went to a monastery.

But anyway, my point is, when any one person can dump $20 million or $25 million or $30 million into a race, when any one person, we ought to know where that money comes from. People need — that's the problem with the 527s. There needs to be an accountability in the system, there needs to be a transparency in the system.

And when groups, whether it's Soros groups or MoveOn.org or Act Up or whatever these groups are out there, there is no accountability, there is no transparency. That money can come from almost anywhere and go into the system and have an effect or a cause or affect an election, where I think it's important that people get elected by their ideas, by their party, by people who want to join in that party system.

That's pretty much how we've worked our system through the ages. But this new law on 527s completely skewed this to people with a lot of money can make a determination on what people see on the air and what the message is.

WALLACE: So before we — I mean, we talked a lot about next year. Let's talk about this year. And, in fact, I think it's on November 16 Congress is coming back for a lame-duck session.

Are the House and the Senate going to be able to resolve their differences and pass intelligence reform?

HASTERT: Well, I think we should be able to do that. I would hope that all the political games are done. You know, so one person's advantage or another party's advantage and not getting that done.

I think we need to get it done. It's important for the security of this country. It's important for us to know what's happening — you know, and to keep our intelligence and to keep our security sound.

We also have some other important things to do. We need to get the budget done. I would hope that we can do that. And we have a highway bill that means over 1.5 million jobs in this country. It also helps the economy and the transportation needs, that we need to get that done as well.

WALLACE: Finally, have you given any thought to how much longer you want to continue as speaker?

HASTERT: You know, I've always said that I think, as long as you can be effective in this job, I will do that. And as long as the members of the House want me to be their speaker, I will serve.

There's no other place for me to go. I could retire and go off and have a good life, but as long as I can serve and do this job and be effective in doing it, then I'll serve at their pleasure.

WALLACE: Mr. Speaker, thank you. Thanks so much for being with us today.

HASTERT: My pleasure. Thanks, Chris.

WALLACE: Appreciate it.