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Q&A: ‘This Is the Year’

Graham Warns of Consequences of Failing to Act on Social Security

Before most Members had even toyed with the idea of actually trying to overhaul the nation’s Social Security system, Lindsey Graham was running on the issue. In his 2002 bid to succeed Sen. Strom Thurmond (R-S.C.), Graham was hammered by Democrats for supporting an outlandish idea: individual investment accounts within the system.

He won that race, and in his third year in the Senate, Graham is challenging colleagues on both sides of the aisle to address an aggressive overhaul of Social Security, and warning that voters will punish inaction on Congress’ part.

Despite taking fire from both friend and foe on the issue (months ago, the White House quickly denounced his initial suggestion that the sacrosanct income cap on payroll taxes might have to be lifted), Graham is committed to seeing the fight through to the finish.

In an interview with Roll Call Editor Tim Curran last week, the South Carolina Republican made one promise about the debate over Social Security: “This year, I’m going to produce a bill that is comprehensive, and it will make every special interest group mad. But it will work.”

ROLL CALL EDITOR TIM CURRAN: In headlines today, you’re seeing the change in the dynamic in the Social Security debate. Sen. Bill Frist (R-Tenn.), among others, is saying this discussion could extend into next year. You hear words like “doomed” tossed around. What is the practical effect of extending this debate?

SEN. LINDSEY GRAHAM (R-S.C.): One, I think every year we put it off we pay a heavy price for reform. Politically, we need to have the infrastructure for reform in place this year. We don’t need to put this off any longer. We need to start coming together and defining the problem in logical terms, not political terms. The truth is we’re gonna pay out more in benefits than we collect in taxes. Over time we go broke. And the truth is, 16 workers were in the system for every retiree when I was born, and in 20 years there’s gonna be two. Today there’s three to one. We’ve gone from 16 to one, three to one, we’ll wind up two to one. It’s unsustainable. Our time limit is not 2042, it’s not 2052. It’s not what the budget office says or what Social Security says about when you start having benefit cuts. That’s not the time to worry. The time to worry is now, because I retire in 2021. I will be 66 years old and am in the middle of the baby boom. If we allow the baby boom generation to come into the system without reform being in place, it’s too late. You’re looking at massive tax increases, massive benefit cuts. Really the window to get this program turned around and marching toward solvency is in the next 10 years, because the baby boomers begin to come into the system.

ROLL CALL:So the headline for this piece is “Graham to retire from Senate in 2021”?

GRAHAM: Well, let’s just put this in perspective. If I follow my predecessor’s course, I will be eligible in 2021. I will become Social Security eligible in 2021 [but] will have another 30 years to serve in the Senate, so I definitely have the long view of this process.

ROLL CALL:Again, talking about the long view, you were probably the first Republican to step out and talk about things like payroll taxes being an option for that and promptly got a pretty cold response from the White House.

GRAHAM: Cold is a … (laughs) I got a response from my party because it’s not traditional. I understood that was going to happen. You cannot save Social Security without restructuring taxes and at the same time restructuring benefits. The amount of benefits owed and the amount of money coming in don’t match. So you’ve got to do two things at once. We’ve got to recalculate these benefits’ index changes. Right now, wage growth is the way you calculate benefits. It creates a demand on Social Security that 12.4 percent payroll doesn’t even come close to meeting. Every expert I talk to says that it should never have been wage growth used to calculate benefits. It should have been inflation. They’ve been having this debate for 30-something years. They predicted in 1977 if you have a wage growth benefit formula, by the early part of the 21st century you’re going to have chaos. Wages grow much faster than inflation. It’s unsustainable at the current tax level. So what I’m proposing is that we make index changes and go from wage growth to inflation, consumer price indexing. That one change puts Social Security in a solvent situation. I’m also saying, let’s have a bipartisan purpose, of securing the safety net as our goal. Not ownership. Not entrepreneurship. But securing the safety net first. Save the safety net that’s coming apart. So for $30,000 and under workers, give them [indexing according to] wage growth. Give the rest of us inflation.

Now, once you change the index, you run into a problem. Over a 35-year period it’s about a 30 percent reduction in benefits. That’s coming anyway. But you go ahead and institutionalize it and what you get for this 30 percent reduction in benefits is sustained solvency. The accounts have one purpose. They’re being overly demagogued and they’re being overly sold. The accounts allow you a new source of money to make up for the brunt of the blow of index changes. That’s all they do.

ROLL CALL:So if these accounts come on top of the benefits structure already in place, and that’s all that happens, does that do anything to reform Social Security?

GRAHAM: You mean an add-on account?


GRAHAM: An add-on account, I think, is counterproductive. No. 1, where does the money come from for the add-on account? Let’s say it’s a 2 percent add-on account. Most people in my state live paycheck to paycheck. It becomes a regressive system. If they have to come up with the 2 percent to put in the add-on account, new money, they’re not going to contribute because they don’t have 2 percent. You know, they’re living paycheck to paycheck. Well, what if we give them a refundable tax credit, the $30,000 and under crowd? Well, then you’ve created a new sustained entitlement program that’s gonna overwhelm the system far more than the transition cost of the carve-out account. So if you object to personal accounts, or carve-out accounts, because of the transition cost affecting the deficit, if that drives your train, well then an add-on account ought to drive you crazy, because an add-on account would have to be a government contribution, because most people won’t contribute on their own. It has a deficit effect far worse than funding the transition cost of the personal account inside the system, the carve-out account.

ROLL CALL:So what do you think, then, is the minimum that can be achieved that would actually represent positive reform?

GRAHAM: OK, here’s the best I think we can hope for: We tie the safety net tight for those who need it the most. The original purpose of Social Security was to have income in retirement to get people out of poverty and give them a guaranteed level of money so they could afford to buy the necessities of life. Well, let’s go back to the original purpose and make every reform item the goal to achieve the original purpose. Let’s secure the safety net. Let’s have index changes, but immunize people at the $30,000 and under level like [Utah Sen.] Bob Bennett does and we’ve got a wrinkle to that. That way they get the full benefit of the current system and you still get reform. To me that’s very creative because what you’re doing is you’re having reform but also tightening the safety net.

Now, when we do the personal account, let’s do the same thing. What I’m doing in this new bill is I’m having a guaranteed benefit in the personal account. You have a carve-out account, but for people who make $30,000 and under we’re going to guarantee a minimum benefit in the account, set a floor so that you can never get less than this. If the account underperforms, we’ll put the money in. We’re going to have the government match to make it more robust. So when you look at your guaranteed minimum benefit from your personal account as a $30,000 or under worker, and you look into what the trust fund will pay, the normal Social Security trust fund, you’ll have wage growth as your formula base. If you combine these two, you will get every penny of the current system and then some.

Bottom line, long story short, we can design a system that has innovation and reform but also focuses on the safety net. They’re not mutually exclusive. Under the bill that I’m producing, I can look every moderate- and low-income worker in the eye and say that you will be the only group I can assure in the whole country is going to get every dollar that the current system promises but can’t deliver without reform. And to the rest of us, I can look you in the eye and say, that if we’ll embrace these reforms we’ll avoid massive tax increases in the future, and that the combined effect of these reforms will allow your children to beat reality. And call it a day.

ROLL CALL:Well, that being the case, then can you only focus on Social Security? The governors are in town and they’re concerned about Medicaid funding, and there’s been a lot of talk about Medicare and tax reform.

GRAHAM: I think we’ve made a mistake in hearings. One, we’ve scheduled these to focus on the safety net, not the options Americans are talking about. I meant it to be saving the safety net, securing the safety net. Every reform measure has as its goal to achieve that. Secondly, I think that basically talking about Social Security not in relation to all the other problems … when you hear it’s insolvent in 2042 you have a different sense of it. When you hear that we’ve $40 trillion in unfunded liability we increase the sense of urgency.

It’s funny you mention that. I had a Democratic Senator come up to me today, who will remain nameless, saying that we’re making a mistake, we’re not selling urgency because Social Security is being talked about in terms that distort the real urgency, which is Medicare and Medicaid and all these things working together. Truly, we have trillions of dollars of unfunded liability. Medicare is far worse off than Social Security, and he’s suggesting that we kinda talk about the entire picture. Now, my answer was, “Great, but I don’t want to put new items on the table as a reason not to do Social Security.” We’ll get into all these arcane debates about tax policy and about Medicare that will be used by some as a justification for doing nothing on anything, nothing on Social Security. So, it’s OK with me to define the entitlement burdens that we face more holistically. What would not be OK is to use that as a justification for doing nothing on Social Security.

ROLL CALL:You’re one of the very few candidates who had talked about Social Security, private accounts, things like that as a candidate. Do you think that’s one of the reasons you haven’t been as surprised by the negative reaction to the proposal while most of your colleagues seem to be shell-shocked by the reaction they’re getting at home?

GRAHAM: I got the same reaction. They spent $3 million worth of ads against me, saying that I was going to put your retirement into Enron stock, that I was going to raise taxes by $2 trillion because that’s the transition cost.

One thing I forgot to say is that raising the cap has a limited purpose, too. If you raise the [payroll tax] cap, it doesn’t save Social Security. That’s a false promise, that by lifting the cap for all incomes, you save Social Security. You don’t. You put new money into the system, but eventually it gets back into deficit. Raising the cap has one utility, in my plan, and that is to avoid the deficit created by the transition costs of personal, carve-out accounts. So, I don’t want to oversell raising the cap, it helps avoid the massive deficits of reform. Now, what was your question?

ROLL CALL:That as a candidate you had talked about the need to reform the system …

GRAHAM: I’ll tell you, when I first made a decision, I’d signed onto bills in the House, [former Rep. and current South Carolina Gov.] Mark Sanford had one. … Well, they immediately come after you based on any bill you’ve ever put your name on.

So I had to make a political decision. All of my political advisers were saying, “Well, you need to say that’s just an idea, you’re not going to raise taxes, you’re not going to cut benefits, you’re going to be everything to everybody.” And I said “Wait a minute, guys. I don’t feel comfortable doing that. I think leadership is the theme of our campaign.” So Social Security fit into the overall theme of leadership, providing leadership for the state, overcoming its racial and economic problems, providing leadership in the Senate to help the president with judges and the war, and also providing leadership on entitlement reform. So I was a minority, but I was the candidate, so I won.

I made a decision we were not going to back off Social Security reform, we were going to challenge our opponent to express how they would solve the problem. And it worked. The ads hurt us initially, but people in your business came to my aid by writing editorials that this is just demagoguery, at least Congressman Graham’s trying to put ideas on the table. I took those editorial board quotes and articles, you know, opinion-maker quotes, and we put an ad up saying his attacks were bogus. And we focused on leadership. We did a debate on “Meet the Press.” I was way ahead but I agreed to do the debate because I wanted to get my ideas out there. Well, basically I said, “Don’t send me to the Senate if you are afraid of me doing something about Social Security because I certainly am. Don’t send me to the Senate if you expect me to ignore the problem of Social Security. Don’t send me to the Senate if you expect me not to embrace hard choices.” Well, I won pretty comfortably. What became a liability early on became an asset at the end. It got to be that people made a joke about their commercials, my opponent’s commercials, saying, “Yeah, how’s Enron doing this week?” They knew it sounded absurd and it was over the top, and the editorial comments kept reinforcing that. So I turned what was a scare tactic tried and true, and flipped it around to where it was a lack of leadership.

ROLL CALL:Is that something that you’re sharing, those lessons, with your colleagues in the debate?

GRAHAM: Absolutely. Hang in there! The public believes it’s a problem, and they hate demagoguery. We took the same dip the president’s taking. When these ads first hit against me my people went nuts. But we’d already talked about how we’d respond and I said, “Chill out, we’re gonna stay firm that there’s a problem, and we’re gonna stay firm that we’re open-minded about solutions.” Well, lo and behold, our commercials hit the demagoguery head on, and it turned out to be an issue that people sort of got immunized over.

ROLL CALL:Would you like to see the Senate take the lead on this?

GRAHAM: I think it has to. Being persistent and being a little bit cavalier about the political consequences doesn’t mean I don’t understand politics. I very much have calculated what I’m doing on this issue. I’m trying to be a leader on an issue that needs leadership. That means defying conventions.

If I were a House leader, I wouldn’t want my Members on a plank until I saw action in the Senate. Now, the House doesn’t have the luxury of ignoring Social Security. I think they have a moral obligation to address this issue just like the Senate and the president. But I totally understand counting on the Senate to go first, that makes perfect political sense.

ROLL CALL:How do you see the timeline playing out?

GRAHAM: The president’s effort to educate the public is essential. I think over time he will turn this around and convince the public to be more open-minded and that we need solutions sooner rather than later. Our Democratic friends are making a huge mistake here. … If the idea that a Democrat can’t help Bush bring about new ideas to save Social Security takes hold, then this becomes judicial obstruction on steroids. If the Republican Party has the view that you can never address raising the [payroll tax] cap, they’ll pay a price.

I really do believe if the Democratic response is, there is no problem, and if you try to help Bush, if you believe there is a problem and you try to help Bush, you’re going to have war declared on you, that there are going to be more Republicans up here than we can handle. And there are certain Democrats who can’t play that game. Now to my Republican colleagues, if we scuttle this deal after we get bipartisan support in securing the safety net that has unconditional ways of saving Social Security, we will pay a price.

ROLL CALL:But, bottom line, this has to happen before Congress leaves this year?

GRAHAM: Look at it this way, the Bush second term is the best chance and the last since 1983 to do something good for Social Security. If we don’t have the infrastructure of reform in place at the end of this year, we get into ’06 politics. We’ve missed the window. Who’s going to be braver in ’08 than we are in ’05? The next thing you know, it’s 2012, and the next thing you know you’re paying out more than you collect, paying out more in benefits than you collect in taxes.

This is a huge year. This is the year. We’ve got the right combination of a president leading and some reform-minded people in both parties. If we miss this year, then I think we’ve put this thing off for many more years, and the consequences for young Americans are devastating. So any suggestions by Senate leadership or House leadership that this is not a big deal I think is misunderstood. This is a huge deal for me. It is a huge deal for the president. It is a long-neglected problem for the country. There will be no ignoring this issue without paying a price.

I’m looking for partners. I’m willing to do unconventional things. I’m willing to focus on the safety net over entrepreneurship because I think we should. But I am not willing to let it go and be ignored in the long run. My challenge is, if your idea of saving Social Security is to say it’s not a problem, and your idea of engaging this debate is to throw rocks at me, then you’d better get ready because I’m gonna throw some rocks at you.

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