This partial transcript of Fox News Sunday, August 19, 2001 was provided by the Federal Document Clearing House. Click here to order the complete transcript.

TONY SNOW, HOST: Democrats are charging President Bush with spending too much, cutting taxes too much, and thus placing himself in a position of having to raid Social Security to pay the bills. Are they right?

Joining us with the White House view, Mitch Daniels, White House budget director. Also here, Brit Hume, Washington managing editor of Fox News.


BRIT HUME, FOX NEWS: Mr. Daniels, let's get your answer to the question as Tony suggested it. How do you respond to the charge that the administration, by virtue of this tax cut and whatever else, has now exhausted all the non-Social Security surplus for the coming year and may be on the verge of having to dip in to that sanctified sum, the Social Security surplus, to pay the bills?

MITCH DANIELS, DIRECTOR, OMB: Well, Brit, it doesn't need much answer. The Social Security trust fund is going up this year. It's going up by exactly the same amount that it would have if there had been no tax cut passed.

So the federal budget is in extraordinarily good shape. We're going to enjoy the second largest surplus in history, and it will get bigger next year.

So the -- this is recess. The kids are out to play in the sense that the Congress is, and a little political horseplay is always conventional. But the facts are that our budget is strong. It's the economy we should be paying more attention to.

HUME: Well, before we get to that, let me ask you about one more question in this area. There was an accounting adjustment adopted in recent days which has the effect, not of taking any money away from Social Security in any broad sentence, but of so adjusting things that there are several billion, what, $4 to $5 billion more available on the sort of non- Social Security side of the budget to accommodate spending.

And it has been suggested that this adjustment, which might have seemed innocent at any other time, was a kind of a nick-of- time accounting switch to keep you from actually having to raid the Social Security surplus. What do you say?

DANIELS: First, let me say that the accountability for this is entirely mine. I'm the one that asked the question, why, when the surplus overall is coming down by about 2 percent, is about how much our revenue estimates missed by, why was the apparent Social Security surplus going up? And the answer is that we were crediting this year, the trust fund, with revenues that really came in 2000, '99 and even 1998.

So, with all this fixation on how big the surplus is relative to Social Security, I thought we ought to be accurate about it. And it would not be accurate to count in '01 revenues that came in in previous years.

Let me make one other point. It's not just accuracy. These trust funds has been shortchanged because of the traditional way of doing this. If you made deposits in your savings account and it took the bank two years to post them, you'd probably want those credited to the year you actually made them so you could collect the interest.

Social Security trust fund has foregone $200 million worth of interest by virtue of this late posting, and we simply corrected that. So it was a step for accuracy, and also for a full credit to the trust funds.

HUME: It didn't hurt you, though, for this year, did it?

DANIELS: In all honesty, nobody looked before. This is innocent. People in the past were not so fixed on the relative size of these numbers. They didn't have the symbolic value they do today, but that's why somebody noticed. That somebody was me, and I'll be glad to debate the virtues of accuracy and full credit for the trust funds with anybody.

SNOW: Democrats assume that later this week, when you release your latest budget estimates, that you will have a current, you know, a budget surplus, a non-Social Security budget surplus, of zero or less -- that is, it could be in deficit -- therefore allowing them to argue that you're going to have to dip into Social Security. Is that number going to be positive or negative?

DANIELS: The number's going to be positive. But, you know, it really doesn't make that kind of difference. No one dips into Social Security. The trust funds are credited with the full amount, whatever it turns out to be, of the excess of Social Security revenues over costs. That number will not change one nickel by virtue of the tax cut or other fiscal decisions we make in this particular year.

So, no, this is political rhetoric, I suspect, on the part of people who regret that they weren't able to spend more of the public's money this year.

SNOW: How about Medicare?

DANIELS: Same answer.

SNOW: Same answer, those trust funds are as strong as they would have been -- in other words, the projections you made at the beginning of the year are still going to hold for Medicare's trust fund?

DANIELS: The Medicare trust fund will go up about $32 billion this year. That's the Part A. I think you two both know that Medicare costs a whole lot more than it takes in, but we do maintain artificially a separation that dates back 40 years to the old- fashioned days when hospitals were viewed separate from the rest of health care.

And Medicare this year will cost about $45 billion more than it takes in, but we do maintain the Part A trust fund, and it will grow by the same $32 billion it would have if there'd never been a tax cut.

SNOW: Mr. Daniels, you mentioned a couple of minutes ago that you thought members of Congress were in bad humor because they're not getting to spend as much as they'd like. Well, it may be that the economy continues to sputter. Money doesn't come in as rapidly as you might like.

Is the president ready to start vetoing bills, and, if so, where's he going to start drawing the line?

DANIELS: The line ought to be drawn at the level of the budget resolution that Congress passed and that the president has agreed to. And if Congress will respect that limit -- which it doesn't have a good track record of doing recently -- but if it will respect that limit, then we will have the second biggest surplus in history. The surplus will be larger than the Social Security surplus for whom that one-year snapshot is important, and the nation's high-priority needs will be met.

So, when the recess is over and we get back to business, that'll be the president's objective.

HUME: Mr. Daniels, the president seemed to succeed when it came to the farm bill with a veto threat and ended up getting several billion dollars out of that measure. Are there any other bills on the horizon that you can now see which are in danger of a veto if they're not cut back?

DANIELS: Not right now. And I think Congress has behaved very well so far and deserves some credit. The bills, as they're moving along, are roughly at the size of the budget resolution.

I think that the president is being clear in saying that we don't want the gamesmanship of recent years to be repeated. He would like to have a clear understanding with the Congress about the repair of our national defenses, about education and the other top priorities before final spending decisions are made.

But so far so good, and hats off to Senate Byrd and Congressman Young and the other leaders of the appropriations process.

HUME: Are you satisfied, and is the president satisfied, that within these budget constraints, that defense, which seems to need more money -- and the Pentagon is saying -- I mean, Don Rumsfeld has said on Fox News that the fact that the tax cut was moved forward a bit has made it much more difficult for him to get the money he feels he needs.

Are you not in a situation now where, because of the budget constraints, the Pentagon, for example, will not get what it actually needs?

DANIELS: If the Congress will approve the president's request, defense spending will step forward by over $30 billion. It's the first step forward in a long time, after years of neglect. And that won't complete the job, but it is an important step that ought to be taken in the national interest. And it can be done consistent with the budget resolution and with the fiscal goals that we've been talking about on this program.

SNOW: Mr. Daniels, you mentioned a moment ago that you think that revenue is going to pick up next year, that the economy is going to pick up. When is that going to begin, and what do you expect to see?

DANIELS: We expect to see, along with virtually all other forecasters, a pick up late this year and through next year. And we've tried to forecast that, we think prudently.

The forecast we will release this week is well within the band of publicly available forecasts from private sector forecasters. It happens to be exactly the number that the Conference Board is using, and the Conference Board has been the most accurate predictor of the economic growth in recent years.

HUME: One thing that seems clear is that there is not much sign yet of an economic turnaround. If there were, which I think it's reasonable to say that the stock market, which has a way of anticipating these things by six months or so, would be behaving exactly in the opposite way that it is behaving now. Clearly the market doesn't see any sign of this turnaround.

Can you point to any signs of the turnaround?

DANIELS: Well, they are hard to find at this point. And I think this only accents the fact that what we ought to be debating is not, you know, some angels-on-the-head-of-a-pin argument about big the surplus is -- it's gigantic by any measure. What we ought to be debating is how to make sure economic growth returns.

Now, the president has a strategy and he's enacted it over the opposition, one most note, of his current attackers. They have provided no strategy for economic growth, and I find that a little odd. It's really sad and a little strange that the Democratic Party, which is historically held itself out as the friend of working people, has had nothing to say about we get this economy moving again.

That's the only right answer for the surplus, for Social Security, Medicare and for meeting our nation's priorities.

SNOW: All right, Mitch Daniels, White House budget director, thanks for joining us this morning.

DANIELS: My pleasure.

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