WASHINGTON -- In the more than 41 years that I have been writing columns, nothing has generated more unfavorable comment from conservatives than my Dec. 6 report on Republican Sen. Lindsey Graham's Social Security plan. He would finance the transition costs for private Social Security accounts by raising payroll taxes. Of all the outraged critics from the Right who contacted me, economist Larry Hunter had the most pungent rebuttal: "There are no transition costs."
If that is so, I asked Hunter, can you write me a one-page explanation to buttress your remarkable claim? Nearly a month later, he gave me three single-spaced typewritten pages plus four colored graphs. Actually, they portray an increase in federal expenditures forced by private accounts -- that is, transition costs. Hunter's point: There would be no long-term net transition costs. Doing nothing will cost much more, beginning as early as 35 years from now. (Hunter's analysis will be published by the Institute for Policy Innovation.)
That amounts to no real transition costs. The problem with this argument is that we are talking about red ink far into the future when nearly everybody now debating the issue will be dead. Although it is a difficult argument to make, it looks like the only alternative to Graham's proposed higher payroll tax payments in the upper income brackets.
The Democratic Party establishment is appalled at the thought of private Social Security accounts turning ordinary Americans into owners of stocks and bonds and, therefore, potential Republicans. The argument by Democrats that private accounts are too risky fails the test of history. Nobody can find a 20-year period in America when investments have not gained.
Accordingly, the central argument against private accounts has become that they cost too much. If 4 percentage points of the 12.4 percent Social Security payroll tax could be invested privately, transition costs were estimated at $1 trillion. If a 6.5 percent contribution envisioned by a bill sponsored by Sen. John Sununu and Rep. Paul Ryan were permitted, the estimated cost would rise to $2 trillion.
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