Institute for Policy Innovation Report: Just Released -- Social Security Reform: Half Measures and Mismeasures

3/17/2004

From: Sonia Hoffman of the Institute for Policy Innovation, 703-912-5742 or shoffman@ipi.org; web: http://www.ipi.org

WASHINGTON, March 17 -- What accounts for differences in the economic scoring of various Social Security reform proposals? According to a new Institute for Policy Innovation (IPI) report, differences occur because some Social Security analysts use a flagrantly flawed yardstick to measure reform proposals.

"All too often, reform plans are measured only according to the amount of general revenue financing they require" says IPI Senior Research Fellow Peter Ferrara in a new study "Social Security Reform: Half Measures and Mismeasures."

Under this yardstick, the less revenues required to finance transition reform, the better the plan is ranked. The opposite is also true; the more revenues required, the lower the plan's ranking.

"This single measuring stick is not comprehensive of a reform's costs or the benefits," says Mr. Ferrara. "The only right way to evaluate reform plans is to weigh all of the costs against all of the benefits."

The gross failure of the general revenue-financing yardstick is evidenced through a reform plan advance through the Brooking Institution.

While the Brooking's plan does not involve any general revenue financing-thus it is ideal to reformers who evaluate and rank solely by general revenue measures-the plan also cuts benefits and raises taxes.

In contrast, a personal accounts plan advanced through IPI requires $6.2 million in general revenue financing. Yet the plan increases benefits, produces the largest tax cut in world history by reduces payroll taxes, and achieves full solvency in Social Security by 2029.

By the general revenue measure, the IPI plan would be an inferior proposal. But by a comprehensive analysis of costs and benefits, it's actually superior.

Even Social Security's Chief Actuary says so. The SSA officially scored the IPI plan and revealed that the plan comprehensive benefits far outweigh its costs.

Continues Mr. Ferrara, "Measuring a plan by its general revenue financing biases the results against personal accounts, particularly large accounts. Unless this mismeasure is corrected, it will cost Americans the most secure retirement available."

The Institute for Policy Innovation is a free-market think tank. For copies of the report, visit http://www.ipi.org or contact Sonia Hoffman at 703-912-5742. The author is available for interview.