Lambro plugged misleading Heritage Foundation Social Security calculator


Washington Times chief political correspondent Donald Lambro promoted a new online Social Security benefits calculator, created by the conservative Heritage Foundation, without informing readers of a crucial flaw in the calculator's methodology. The calculator greatly underestimates the benefits that most workers are scheduled to receive under current law. This flaw allows Heritage to claim that "[w]orkers would receive a higher rate of return under President Bush's plan for personal retirement accounts than they would under the existing Social Security system," as Lambro described in his April 14 article.

On the web page featuring the calculator, Heritage claims that its calculator "estimates how you would fare under the President's plan to reform Social Security." After entering an age, gender, marital status, and income, the calculator compares the monthly benefits an individual would supposedly receive under the current law with what he or she would supposedly receive under a hypothetical version of Bush's plan, which would allow workers to divert about four percentage points of their Social Security payroll taxes into private accounts.

While several of the assumptions underlying the calculations, such as the level of future average stock returns and the precise formulation of a plan that does not officially exist, are highly contentious and subject to debate, one such assumption is inarguably misleading. From Heritage's description of its methodology:

Today's Social Security To provide a basis for comparison, the Calculator estimates your likely benefit under today's Social Security. According to the 2004 Report of Social Security's Trustees, the program will be unable to meet its promised obligations after its Trust Fund becomes insolvent in 2042. The Calculator adjusts Social Security benefits to the level that current law requires Social Security to pay after 2042 (74 percent of promised benefits). In the most literal sense, this is the alternative to reform -- doing nothing at all.

In other words, the calculator purports to compare scheduled benefits under current law with benefits under a hypothetical privatization plan, but it cuts 26 percent from scheduled benefits, including those for people as old as 54. But if a worker is 54 years old today and retires in 2018 at age 67, he or she would receive all currently promised benefits for 24 years before the cuts that Heritage assumes would occur in 2042.

Moreover, Heritage's claim that "the alternative to" what it calls "reform" -- that is, the creation of private accounts -- is "doing nothing at all" is specious, since the only "reform" Heritage considers is a plan based on private accounts. Such a plan is not the only alternative to "doing nothing at all"; it's just the only alternative that Heritage chose to include in its calculator.

Posted In
Economy, Social Security
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