Having criticized the Institute for Policy Innovation recently, I should note that Peter Ferrara has written a civil response to me. He argues that his reform plan would make Social Security solvent without benefit cuts or tax increases. His plan would, moreover, amount to “the largest reduction in government spending in world history” and “the largest reduction in taxes in world history.”
The trouble is that Ferrara’s plan increases the cost of the current system for the first 75 years and promises reduced costs only afterward. Take the year 2035, when Social Security’s actuary says that paying benefits will eat up 17.4 percent of wages. The actuary’s most favorable estimate for Ferrara’s plan has the total cost of funding personal accounts and paying traditional benefits that year at 19.3 percent of wages.
Throughout his response, he overestimates the advantages of his plan. For example, he says that he would eventually reduce the “Social Security payroll tax rate. . . from the current 12.4 percent all the way down to 4%.” That 4-percent figure excludes the cost of funding the personal accounts and the other tax revenues he’s counting on. Add them back, and he’s barely cutting taxes at all. And even this scenario assumes that conservatives were successful in achieving spending cuts outside of Social Security that are so substantial as to amount to–as Ferrara says–the largest spending cuts in world history.
For a more thorough critique of the plan, go here.