This is a partial transcript of "Special Report With Brit Hume," Dec. 10, 2004, that has been edited for clarity.

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JIM ANGLE, HOST: The Social Security (search) debate started in earnest this week, as President Bush met with the trustees of the system at the White House yesterday, and talked about the need to fix the financial problems in Social Security, and his desire to carve out personal accounts that individuals would own and could invest. This would be the biggest change in Social Security since it began, and is obviously controversial.

To help us figure out what it means, especially to you, we turn to Mike Tanner of the Cato Institute, a longtime student of Social Security and a proponent of personal accounts.

Mike, thanks for joining us.

MIKE TANNER, CATO INSTITUTE: Pleasure.

ANGLE: First, let’s talk about the system overall. The president said yesterday, $11 trillion in unfunded liabilities. In other words, promises that Social Security has to pay retirees that it cannot pay for as long as taxes and benefits remain where they are now.

TANNER: Well, that’s exactly right. The fact is that going forward in the future, Social Security cannot pay the benefits that are promised with the current tax levels. And there’s only a very few choices for reform. In fact, it was former President Clinton who laid out the very limited options. He said, you can raise taxes, you can cut benefits, or you can invest privately. And that’s really the only set of choices we have to work from.

ANGLE: And the idea is the sooner you start, the easier it is. The longer you wait, the more difficult it becomes.

TANNER: Every two-year election cycle that we wait to do something, costs us about $330 billion more, no matter what it is that we’re going to do.

ANGLE: Now, the president wants to fix the system once and for all. He also wants to create personal accounts. Let’s take these one at a time. There are things that you can do to fix Social Security, any number of things on the benefits side, tax side. All of them are controversial; I think it’s fair to say.

And the White House seems to hold the view that it’s better to work behind the scenes with members of Congress, as has happened other times there were fixes in Social Security. So everyone holds hands and jumps into this pool at the same time.

What is it, what are the fixes and why are they so controversial?

TANNER: Well, as I say, if you’re not going to do private investment accounts, then the only things that remain are to raise taxes. And you can either raise the payroll tax itself or raise the amount of income subject to the payroll tax, both of which the president seems to have ruled out. You can raise income taxes in some way, or you could cut benefits.

You could raise the retirement age. You could change the formula by which benefits are determined. Or you can change the COLA formula, things of that nature.

ANGLE: But no one thing would fix it all?

TANNER: No, you’ve got — I mean $12 trillion in unfunded liabilities. That’s a big hole that you’re down in. It’s going to take a long way to dig ourselves out of it.

ANGLE: Now on personal accounts, the president hasn’t chosen a particular plan, but he had a commission that laid out some. You’ve got one; other people have plans on Capitol Hill.

One idea is to take about 2 percent of the 12.4 percent that people pay in taxes or that are paid in taxes; some by the person, some by their employer. And let them put that in a personal account, which they could invest. Now, the problem with that is, when you give that money to people initially, that’s money that can’t be paid out in benefits, and so that money has to be paid out somewhere.

TANNER: Well, it actually reduces the total unfunded liabilities of Social Security. But it moves the cost of paying those all forward in time. The best analogy I can give you is paying off those credit card bills that everybody is running up over the holidays. You know, you could just pay the minimum payments on them just about forever. You’d be much better of if you paid off your bills today. Now of course, that might mean that you have to work a little harder to find that extra money in order to pay them now. But you’re definitely better off doing it.

ANGLE: Right. You’d have to pay more up front, but you’re paying less overall.

TANNER: That’s exactly right. And with Social Security, we can pay a little bit now, or we can pay a lot more down the road.

ANGLE: Now, what is this argument that if you do personal accounts, it would actually save money, that you would have less in total, less than $1 trillion, let’s say, to pay an unfunded liability. How would creating personal accounts save money?

TANNER: Well, very simply. The money that’s paid to individuals out of their individual account is money that the government doesn’t have to pay them out of Social Security. And since the return on the money invested in real assets is so much greater than what Social Security can provide, the government can save more money by not having to pay the benefits, than it will lose in tax revenue not going into the system.

ANGLE: Because if you take personal accounts, you’re not going to get the full benefits you would get. They’re going to take some of that away from you.

TANNER: That’s right. And the loss of benefits would be more than offset by the returns you gain from your individual account.

ANGLE: Now, critics will say more than offset by the returns. How can anyone guarantee that? And obviously there are no guarantees, but the investment side of this would be very limited, as I understand it.

TANNER: That’s right. All the plans that are being talked about on Capitol Hill would at least start you off in a very limited set of investments, broadly diversified, sort of mutual fund type of indexes.

Nobody is going to have to sit down with The Wall Street Journal (search) at night and try to pick between General Electric and General Motors. You’re not going to invest in your brother-in-law’s South American gold mining stock.

(LAUGHTER)

ANGLE: Or Enron

TANNER: That’s right. These are very safe investments.

ANGLE: Now if you — look, people worry about this and criticize the notion of running the stock market. But if you look at the history of the stock market, as I understand it, over any 20-year period, you get better returns from that than any other investment.

TANNER: Well, that’s right. The markets are remarkably safe when you have a long investment time horizon. And we’re not talking about people investing for one year or even five years, but over 20, 30, 40 years or more. That’s remarkably safe. And it’s much safer than the Social Security system that’s $12 trillion in debt.

ANGLE: Just a few seconds left. The politics of this are a killer. You’ve already got some Democrats saying, we don’t like this, personal accounts are just an attempt to undermine Social Security. What are the politics, very quickly?

TANNER: Well, I think that the old guard of the Democratic Party is going to fight this. This is, after all, the linchpin of the New Deal. They’ve sort of been fighting this war for the last three elections, at least and not succeeding, by the way. But I think there’s a lot of new, young Democrats, people like Harold Ford or Barack Obama (search) who are open to reform.

ANGLE: OK. Got to go. Sorry to stop you.

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