Graham's bill and accompanying statement did not address the elephant in the living room that Republicans ignore: an estimated $1 trillion in transition costs. He did address it, however, in his Heritage speech. Ruling out financing the cost through federal borrowing, his answer is the un-Republican solution of higher taxes -- raising the $87,900 income limit subject to the payroll tax by an unspecified amount. Boosting it to $200,000 will completely pay for transitional costs in 10 years. As revenues grow, Graham's plan would reduce the 12.4 percent payroll tax rate.
This is a net tax hike for upper-middle income taxpayers who voted for George W. Bush as a tax cutter, not a tax hiker. Such an outcome would be hard for Republicans to swallow, and early reaction has been negative. "I just think Lindsey is trying to be virtuous," one supply-side theorist told me. Graham responded: "Virtuous? I'm just trying to be practical."
His tax plan, Graham believes, is the only way he can attract Democratic co-sponsors for private accounts. Democrats correctly have viewed millions of lower income Americans holding stock and bond funds as a dagger at their breast. The voter who has discovered the joys of financial markets is automatically a potential Republican convert.
Although Democrats may find it even harder to accept private accounts than for Republicans to accept a higher tax base, there are Senate Democrats who qualify as possible co-sponsors: old-fashioned fiscal conservatives from "red" states who might buy into Graham's bargain. Ben Nelson of Nebraska and Bill Nelson of Florida are obvious, but both are junior senators. Graham needs a senior Democrat who has pounded away at the Bush deficits, such as Max Baucus or Kent Conrad, ranking Democrats on the Finance and Budget committees respectively.
It is difficult to measure the accumulated conventional wisdom on both sides of the aisle Graham must overcome. Time is not on his side. With Social Security heading the president's second-term agenda, he feels he has no more than six months to sell his plan. His bargain would be painful for both sides, but nobody else has an idea with a chance to succeed.