In 1967, he received a Ph.D. in economics from the University of Georgia. After earning his Ph.D., Gramm taught economics for 12 years at Texas A&M University (1967-1978). In addition to teaching, Gramm served as a partner in the economic consulting firm Gramm & Associates (1971-1978). Gramm often noted in his political campaigns that he had repeated three grades in school but had overcome his academic deficiencies by hard work.

In 1976, Gramm unsuccessfully challenged Texas Democratic Senator Lloyd M. Bentsen, in the party's senatorial primary. Nine years later, Gramm and Bentsen would begin what became an 8-year relationship as senatorial colleagues from Texas. During their Senate tenures, both attempted to run for President, but neither made a serious showing.

In 1978, Gramm successfully ran as a Democrat for Representative from Texas's Sixth Congressional District. He continued his service in the House, being reelected in 1980 and 1982.

In 1981, Gramm attended Democratic Caucus budget meetings and then secretly shared their strategy with Republicans to help pass newly inaugurated President Ronald Reagan's budget. In response, the House Democratic leadership stripped him of his seat on the committee. Following this action, Gramm resigned his House seat and successfully ran to fill the vacancy Republican, becoming the first Republican to represent the district since its creation. After Gramm left the House, the seat remained Republican, first under Joe Barton and later John Carter.

In 1984, Gramm was elected as a Republican to represent Texas in the U.S. Senate. He easily defeated liberal Democrat Lloyd Doggett of Austin, later a member of the House from an Austin and an Austin-McAllen apportioned district, for the right to succeed retiring Republican Senator John G. Tower. Gramm polled 3,116,348 votes (58.5 percent) to Doggett's 2,207,557 (41.5 percent) Gramm served on the Senate Budget Committee from 1989 until leaving office in 2003. Gramm and Senators Fritz Hollings and Warren Rudman devised a means of cutting the budget through indiscriminate, across-the-board spending cuts if deficit-reduction targets were not met. They were successful in making the Gramm-Rudman-Hollings Act law, but portions were ruled unconstitutional and other sections have largely been superseded by other budget-controlling mechanisms. Later in his Senate career, Gramm spearheaded efforts to pass banking reform laws, including the landmark Gramm-Leach-Bliley Act, which tore down Depression-era laws separating banking, insurance and brokerage activities.

In 1990, Gramm won his second term with an easy victory over Democratic State Senator Hugh Parmer of Fort Worth, even as fellow Republican Clayton Williams, was narrowly losing the governorship to Ann Richards.

As a senator, Gramm often called for reductions in taxes and government spending. He employed his "Dickie Flatt Test" to determine if federal programs were worthwhile. Dickie Flatt was a printer in Mexia, Texas, and a Gramm supporter. In Gramm's eyes, Flatt embodied the travails that a typical Texas independent businessman faced in the realm of taxation and government spending.

Gramm ran unsuccessfully for the Republican Party nomination in the 1996 presidential election. Although he began the race with a full warchest, it is generally agreed that Gramm ran a poor campaign in the Republican primary. He writhdrew from the contest on the Sunday before the New Hampshire primary to support senatorial colleague Robert J. Dole of Kansas. Gramm, a proponent of free trade, also lashed out at temporary Republican frontrunner Patrick J. Buchanan, whom he mocked in derision as a "protectionist."

After exiting the presidential race, Gramm defeated school teacher Victor Morales of Dallas to win his third and final term in the Senate. Morales ran a low-budget campaign in an effort to make contact with the Democratic grass roots. Gramm left his Senate seat a few weeks before the expiration of his term in December 2002 so that his successor, fellow Republican John Cornyn, could gain seniority over other newly-elected senators.

Rumors were rampant that he was being considered to be the next U.S. Secretary of the Treasury in George W. Bush's second term, he was not offered the position. He was also thought to have been in the running for the presidency of Texas A&M University, but the position went to former CIA Director Robert Gates instead. Gramm is a vice-chairman of UBS Investment Bank.

Phil Gramm is married to Dr. Wendy Lee Gramm, a native of Hawaii, who is associated with George Mason University's Mercatus Center in Virginia. They are the parents of two grown sons.