That led Lindsey Graham to propose raising the amount of taxable income subject to the payroll tax, an offer to Democrats in exchange for private accounts. When I reported Graham's proposals, I was bombarded with criticism that the senator was "negotiating with himself," threatening a further graduation of the already highly graduated tax system. Hunter, chief economist of the FreedomWorks think tank, told me Graham had bought into a problem that does not exist.
Hunter's argument is that transition costs are "significantly smaller" than costs from doing nothing about the estimated $12 trillion liability in the Social Security system. In his paper prepared for me, he argued "so-called 'transition costs' are demonstrably smaller than the 'do nothing costs.'"
Hunter cites the Sununu-Ryan bill, limiting federal spending growth to 3.6 percent a year (the Clinton administration rate), as getting into the black in 2037. Under his bill, Sununu told me, the additional, temporary federal borrowing forced by private accounts could be limited to $600 billion. If no change is made in the present system, the federal borrowing to sustain Social Security would expand as far as the eye could see into the rest of the 21st century. Hunter, Sununu and Ryan make only conservative estimates, not figuring in the economic feedback from so much new private investment.
"The debate in Washington over so-called 'transition costs' completely misses the point," Hunter wrote. "There already is a $12 trillion liability on the books of the U.S., which can only be shrunk by repudiation." Since that repudiation is likely to occur when nobody around today is still alive, Democrats are following John Kerry's campaign stricture that there is no Social Security problem and no need for change.
Writing an open letter to Treasury Secretary John Snow, published in the Dec. 20 Wall Street Journal, Steve Forbes (CEO of Forbes Inc.) wrote: "Critics will cry that we will have to float bonds to implement this kind of reform. So what? . . . It would turn Social Security from a pay-as-you-go liability into a capital-creating, economy-growing asset." The question remains whether nearly as many Democrats would be induced to sign up for Forbes's vision as they would for Graham's tax increase.