Lindsey Graham, South Carolina's senior
senator, must be giving some of his fellow Republicans fits. Recently,
he had the gall to suggest Congress might need to raise payroll taxes to
help finance President Bush's proposal to privatize a portion of the
Social Security system.
The president has stated that one of the top priorities of his second
term is Social Security reform. To that end, he has proposed allowing
Americans to divert a portion of their retirement savings into private
accounts, including investments in the stock market.
While Graham is a longtime advocate of this plan, he also apparently
is a realist.
"You can't reform the system and put Social Security on solid
financial footing without some sacrifice," Graham said last week. "I'm
very open-minded about ideas on how we can achieve sustained solvency."
He said one option might be to raise the annual tax cap on Social
Security earnings from $87,500 to $150,000. The result of that could be
additional payroll taxes of up to $3,875 a year for upper-income
taxpayers, according to one analysis.
Graham also believes that hiking payroll taxes might help attract
Democratic support, which he views as essential for passage of a reform
plan. So far, however, House leaders have not echoed that sentiment.
As supporters view the reform proposal, the shift of funds from the
Social Security trust fund to individual retirement accounts ultimately
would be a wash. The shift would leave the government short of money.
Without a tax increase, the government would have to borrow more,
perhaps as much as $2 trillion, to make up the shortfall. But as workers
retire, the government would have to pay less in direct Social Security
outlays, eventually making up for the lost revenue.
But that assumes the system works like a Swiss clock. What if the
extra government borrowing has a calamitous effect on the value of the
dollar and interest rates?
Perhaps even more pertinent, what if private investments go south?
Would the government be prepared to let destitute senior citizens pay
the price for their own investment follies? In all likelihood, Congress,
in order to sell privatization, will have to maintain a significant
portion of the Social Security safety net, which will make reform more
expensive -- prohibitively so perhaps even with the sort of payroll tax
hikes Graham has mentioned.
The administration is selling privatization as a virtual sure thing:
Invest and you will prosper. It is interesting to note, however, that a
campaign fund controlled by Senate Majority Leader Bill Frist, R-Tenn.,
has lost almost $460,000 in stock market investments since 2000 and now
does not have enough cash on hand to cover a significant bank loan.
If the Senate majority leader can lose big on the stock market, so
can millions of American workers. And if they do, who will take care of
them in their old age?
Congressional Republicans need to heed Graham's advice.
