The following is a transcripted excerpt of 'FOX' News Sunday, December 19, 2004.

CHRIS WALLACE, FOX NEWS: The Los Angeles Times reports that the White House wants the Pentagon to cut tens of billions of dollars from upcoming budgets. The paper also says military officials are preparing an Iraq war supplemental budget of $80 billion for next year. That's up more than 20 percent from this year.

Well, this week President Bush held a two-day economic conference to start selling his ambitious second-term agenda. After the president, the official who may have the biggest job pushing Social Security and tax reform through Congress is our first guest, Treasury Secretary John Snow.

And, Mr. Secretary, welcome. Thanks for coming in today.

JOHN SNOW, TREASURY SECRETARY: Thanks, Chris. Good to be with you.

WALLACE: The centerpiece of the president's plan for Social Security reform is the creation of these private savings accounts. But if younger workers are allowed to put up to two-thirds of their payroll taxes into these private accounts, won't their Social Security benefits from the government be cut?

SNOW: Well, Chris, look, this is a problem that's got to be addressed. We have no option if we're to avoid deep cuts in benefits or huge payroll increases in the future. So it's unavoidable. We don't have any option.

The president is showing leadership on it. And the unfunded nature of this is staggering: $10 trillion. It's a real cost. And these personal accounts are a way to help provide security for people for their future and help us find a solution to this huge problem.

WALLACE: But if I may repeat my direct question, as part of that, won't their government benefits be cut?

SNOW: Well, they're going to substitute benefits from the personal accounts, which can grow at a rate which is faster than the rate of buildup of benefits within the system. So they're going to come out ahead.

WALLACE: But they would lose some of the government...

SNOW: They take money that would be going into the system, it gets put into these personal accounts. They reduce their claim on the system, but they get the personal accounts as a nest egg, which will grow faster, at least have the opportunity to grow faster, than the reduction in the payout from Social Security itself.

WALLACE: So anyone who is investing in these private accounts would be trading the chance — maybe, as you say, a very good chance, but still the chance — for higher returns from these private accounts for a certain cut in their government benefit?

SNOW: Well, remember, it's all voluntary. It's all voluntary. And nobody...

WALLACE: But that would be...

SNOW: That's right. You reduce your claim in the future against Social Security so the government's long-term obligation goes down. But you have this private account which allows you to build a retirement nest egg and, to do so, earning a market rate of return which is higher than the rate of return on Social Security.

WALLACE: Let me ask you about that, though, because the whole point of Social Security, when it was formed, was to guarantee a social safety net, a safety net for our senior citizens.

Now, some countries have already started these private accounts, such as Britain and Chile. They've had it for years. And in some cases, certainly not all, but in some cases, some of the elderly who have put their money into these private accounts have ended up losing money.

What would happen in this country if some seniors should end up losing money because of their investment in the private accounts and end up not having enough to make ends meet?

SNOW: Well, Chris, look, this is to supplement Social Security, right? It's an add-on. It's an addition.

WALLACE: Well, it isn't an add-on because you said it's a tradeoff.

SNOW: Well, but you still can claim part of your Social Security, right?

WALLACE: Right.

SNOW: So you get both that and the nest egg that comes from the personal savings accounts.

But these are going to be safe investment vehicles. They'll be something like the investment opportunities that government employees have through the government Thrift Savings Plan, the 401 plan for the federal employees, which gives federal employees five options, five prudent options, in broad-based investment vehicles.

And we're also talking to Europe, talking to the rest of the world, our trading partners, about the things they can do to grow faster. Because as they grow faster, they'll buy more from our manufacturers and from our farmers and from our producers.

WALLACE: I want to switch, if I can, to tax reform, which is also a big item on the president's agenda.

Is it fair to say now that the really big ideas, like replacing the income tax with a national sales tax or a flat tax, that those big ideas, some would say drastic reforms, are now basically on the back burner?

SNOW: No, I wouldn't say that at all, Chris.

Shortly, the president will be appointing a panel of experts, bipartisan panel, to come up with options, working with Treasury, to fulfill the president's commitment to reform, which means a fairer tax system, a simpler tax system, getting out all this complexity, and, finally, a tax system that's more pro-growth.

And then we'll be working with the panel — it's wide open for the panel. We're going to ask the panel to look at everything and do the best thinking possible...

WALLACE: So we're not just talking about tax simplification, closing loopholes. You're saying that there's a real possibility that it is open for consideration, the idea of a flat tax or a national sales tax and basically blowing up the federal income tax?

SNOW: Well, the president will ask the panel and ask me to give him the very best thinking across the board on how to produce broad- based reform of the tax system. So everything is on the table.

WALLACE: And how quickly do you expect this to happen?

SNOW: Well, the panel should be appointed soon. We will ask them to come forward with their options, their review, their analysis as soon as possible in 2005. And then I would be...

WALLACE: You expect recommendations are going to be taken up to the Hill by the end of 2005?

SNOW: Well, and then, as soon as possible after getting the panel's recommendations, we'll finalize recommendations to the president. So, certainly, I would anticipate in '05.

WALLACE: OK. Finally, your future as treasury secretary was a big guessing game, as I'm sure you know all too well.

Here's what The Washington Post reported just after Thanksgiving. You can take a look there: "One senior administration official said Treasury Secretary Snow can stay as long as he wants, provided it is not very long."

The Financial Times says, "Top Republicans sounded out Fed Chairman Alan Greenspan" about taking your job.

Mr. Secretary — and I guess I'm asking you this more as a human being than as the treasury secretary — as you read all this, and there was no reassurance from the White House for 10 days, did it hurt your feelings?

SNOW: Well, look, I'm honored to be asked to serve in this position and honored to have a chance to advance the president's economic agenda. I don't...

WALLACE: But what did you think when you woke up in the morning and read that?

SNOW: You know what I thought? I was reminded of — you'll recall the famous Welsh leader of parliament who said he avidly read the newspapers every day because he had an insatiable interest in fiction.

(LAUGHTER)

WALLACE: Do you think, in any way, that it has hurt your standing either on Wall Street or on Capitol Hill?

SNOW: The president has asked me to say. Together, I think we're going to be effective in advancing his agenda, without any doubt.

WALLACE: Mr. Secretary, I want to thank you. I want to thank you for answering some of the questions that people have about these plans, and we want to have you back to answer some more of them.

SNOW: Hey, thanks, Chris. Good being here.

WALLACE: And happy holidays, sir.

SNOW: Same to you. Thanks.