This is a partial transcript of "Special Report With Brit Hume ," Feb. 4, 2005, that has been edited for clarity.

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(BEGIN VIDEO CLIP)

PRESIDENTBUSH: We’re not going to play politics with the issue. We’re going to say if you’ve got a good idea, come forth with your idea. Because now is the time to put partisanship aside and focus on saving Social Security for young workers.

(APPLAUSE)

(CHEERING)

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BRIT HUME, HOST: But not only do the president and congressional Democrats not agree on how to deal with the Social Security (search) problem, they don’t really agree on what the problem is. One thing everybody agrees is that it’s complicated to the point of bewildering.

To help us sort it out, or at least start to, we turn to our chief Washington correspondent Jim Angle, who has been closely following this issue for years.

Welcome, Jim.

JIM ANGLE, FOX NEWS WASHINGTON CORRESPONDENT: Thanks, Brit.

HUME: Let’s start out the year 2018, the president talks about things going badly in 2018. What exactly happens to Social Security in 2018?

ANGLE: Right now, Social Security is running a surplus, meaning it’s taking in more money than it pays out. In 2018, it starts to pay out more than it takes in. At that point, it will turn to the federal government; Social Security is an independent agency, turns to the federal government and says you’ve been borrowing all surpluses we’ve run in recent years. They are on the ledger as part of our trust fund. Now you need to start paying up.

HUME: You say, "they’re on the ledger" that means in the form of Treasury notes in the form of one kind or another?

ANGLE: Correct. Special Treasury notes.

HUME: Special Treasury notes (search), the Social Security is holding these assets. And these assets in the form of these government notes and they owe the principle back, right?

ANGLE: Plus interest.

HUME: Plus interest. Pay up. We need it to pay benefits.

ANGLE: Right. In the first year 2018, it’s 16 billion. It quickly starts to rise: 2020, 56 billion, 2025, 160 billion, 2032, 150 billion a year.

HUME: Now, does the federal government set aside money to pay this?

ANGLE: Oh, no. Oh, no. We’ve been spending that money all along, of course. And this, of course, was the argument a few years ago about a lock box and so forth. The federal government always borrows that money. It would borrow the money anyway, but it would borrow it somewhere else. But instead, it has been borrowing from the Social Security system and will have to start paying it back.

HUME: And in fact, by law that is the only place a Social Security system can put a surplus is in these — is loaning it to the government.

ANGLE: Because they’re guaranteed. There is no risk.

HUME: Right. The full faith and credit of the United States. So what is the consequence of the fact that the Treasury owes this money to Social Security, and Social Security will need it starting in 2018 to pay benefits?

ANGLE: Well, it tells you what kind of pressure there will be to fix the system.

HUME: Well, I know. But I mean it does mean that the money will have to be raised by either what? Raising taxes or?

ANGLE: We’re going to have to raise taxes or borrow more money. You’re talking about years.

HUME: Or cut benefits.

ANGLE: Or cut benefits. You are talking about years in which you’re talk about $200 billion, that you have to come up with, create out of nowhere, either from taxes or borrowing.

HUME: So, the Social Security system is not at that point bankrupt. It is not insolvent in any legal terms.

ANGLE: No. No.

HUME: But the government at that point is obligated to come up with billions of dollars growing into the hundreds of billions, to make good its obligation to Social Security.

ANGLE: That’s right. And one of the problems here is you’ve gone from 16 workers to every beneficiary in 1950 to 3.3 now, and you’re going to two. If you go to a point where you have two workers supporting every beneficiary in Social Security, any kind fix you have is a tremendous burden on those two workers and very difficult to pass politically.

HUME: But at this point, the workers that are remaining on the force will not be hit to pay additional Social Security taxes. But they might get hit to pay additional taxes to make up what Social Security is owed by the rest of the government, correct?

ANGLE: Well, they may also get hit with additional taxes for Social Security. But the point is the system doesn’t have enough money. Now, you get to the next date that we were talking about earlier, 2042, that’s when the trust fund is exhausted. It no longer has any money, can no longer turn to the federal government and say you still owe us money, pay up.

HUME: Now, at that point, there are still payroll taxes coming in.

ANGLE: Yes, payroll taxes coming in every year.

HUME: How much of the benefits would they be able cover?

ANGLE: They will be able to pay about 73 percent of the benefits they have promised.

HUME: So at that point, Social Security really, it will have exhausted the surplus and interest on it.

ANGLE: Right.

HUME: And all it will have then is the payroll taxes.

ANGLE: Is the incoming tax.

HUME: And that is not going to be enough to pay everybody.

ANGLE: It won’t be enough. It will come up shorter and shorter every year.

HUME: So something like a 25 percent benefit cut to the Social Security, which is on the horizon then.

ANGLE: That is correct. And that is unavoidable. And that’s why the president — that is the context in which the president talks about private accounts, personal accounts.

Let’s listen to what he said during a press conference in December in response to a question that FOX asked him.

(BEGIN VIDEO CLIP)

BUSH: And over time that rate of return would enable that person to be — have an account that would make up for the deficiencies in the current system. In other words, the current system can’t sustain that which has been promised to the workers. That’s what’s important for people to understand.

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HUME: So, let’s assume I’m young enough to qualify, which I’m not. But assume I were. And it started some time in the next couple of years — one of these personal accounts or private accounts. And I had been investing part of my Social Security proceeds in that over time and had gotten some growth. And the moment of 2042 arrives and many Social Security benefits paid out from the Social Security trust fund, from the receipts paid in the payroll tax, suddenly drops off by 25 percent or so.

ANGLE: Right.

HUME: The ideas is, from what you described, that I would have something to make up for that in the form of the proceeds that are in this private account.

ANGLE: Right. The president.

HUME: And the growth that has occurred to it.

ANGLE: The president sees this is as a cushion against inevitable benefit cuts. The Social Security system, everyone acknowledges that at that point benefits will have to be reduced because Social Security cannot spend money it doesn’t have. It can’t ask the federal government to help it out. It can only spend money set aside for Social Security.

So, what the president sees is the private accounts, which have, if you invest in a mixture of equities and bonds, stocks and bonds, you would get a higher return. Historically, somewhere in the 5 percent to 6 percent range.

HUME: Well, then it sounds as if the president is trying to do two things here. He is trying to head off the spending of a lot of ordinary taxpayer money, general revenue money, to the Social Security system between 2018 and 2042.

ANGLE: Right.

HUME: And he is also trying to create the cushion for the retirees that would be needed come 2042.

ANGLE: Well, you won’t get around paying back the trust fund.

HUME: Oh, I know that.

ANGLE: That you cannot escape. But he is trying to soften the blow.

HUME: How does he do that?

ANGLE: Well, one of the things to keep in mind is people wonder why you need to do this now. He is a second-term president.

HUME: Quickly.

ANGLE: This is only an issue that a second term president can tackle. If you wait eight years, the baby boomers will have started retiring in large numbers. Their benefits will be locked in. You will have a huge problem, both financially and politically, if you try to fix it after that.

HUME: All right. Jim, we’re going to have you back as we go along here.

ANGLE: OK.

HUME: Thanks very much.

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