Ferrara made this claim most recently in an op-ed published by the Washington Times on March 9^th op-ed, "Social Security sellout".  He backs up this claim by citing memos written by the non-partisan actuaries which concludes that the plan he developed and a similar plan offered by Representative Paul Ryan and Senator John Sununu would restore Social Security solvency.  Ferrara relies on a fiscal slight of hand to use that conclusion to claim that the Social Security actuaries found the individual accounts in the plan restore the system's solvency.  While it is true the estimates prepared by the SSA actuaries found that the plan as a whole would restore solvency, a careful reading shows the accounts alone actually make the 75-year shortfall larger.

When the actuaries analyzed the proposal developed by Mr. Ferrara which is the basis for the Ryan-Sununu plan, they calculated the impact of the accounts alone, without any additional general revenue transfers or tax cuts.  These estimates were included in a chart near the end of the memo. The actuaries estimated that without general revenue transfers, the individual accounts in the Ferrara plan would increase Social Security’s actuarial deficit by nearly 50%, from 1.92% of payroll under current law to 2.83 and the trust fund would be broke by 2015.   By 2025, the Ferrara plan would produce a Social Security cash deficit equal to 7.37% of payroll, more than $850 billion in current dollars.

The way that the plan actually restores Social Security solvency is by making substantial transfers of general revenues to the Social Security trust fund. Translated, that means the plan relies completely on spending reductions outside of social security and increased corporate taxes and new debt. The same measures could just as easily be tapped to fix current social security without the personal accounts.  It isn’t hard to eliminate a $3.7 trillion deficit when you dump an additional $6.8 trillion into the system.

The spending reductions that the plan would require in order to finance the general revenue transfers would require substantial reductions in all other government programs outside of Social Security, including Medicare, Medicaid, veterans’ benefits, etc.  And if the additional corporate revenues assumed in the plan don’t materialize, there will be pressure to increase corporate income tax rates to raise the necessary funds.

While there can be a legitimate debate on the merits of the spending reductions and increased corporate revenues in the plan, advocates of this approach should acknowledge that there is real pain in their plan, just not within the Social Security system.   


Links:
Peter Ferrara Washington Times Op-Ed  "Social Security Sellout"  (March 9, 2005)

Office of the Actuary Social Security Administration  Table 1' -- Ferrara Proposal--High Expected Annual Yield, No General Fund Transfers or Tax Cuts (December 1, 2003)

Centrists.Org: Unfunded Transition Costs of the Ferrara Social Security Proposal (December 2, 2003)

Social Security Administration, Office of the Actuary Memorandum Estimated Financial Effects of the [Ferrara] "Progressive Personal Account" Plan (December 1, 2003)

Centrists.Org The Fourth Entitlement:  Interest (December 1, 2003)

Centrists.Org Raising the Cap on Payroll Taxes Doesn't Solve the Social Security Problem
(November 17, 2003)

Centrists.Org No-BS Long-Term Budget Baseline Homepage

Centrists.Org Suggestions for Income Testing in Social Insurance Programs (October 27, 2003)

Centrists.Org Issue Summary:  Wealth Building (Basics)

Centrists.Org Issue Summary:  Social Security