FreedomWorks

Factcheck.org, widely respected for monitoring the factual accuracy of what is said by major U.S. political players on both sides of the isle has released a startling report about the Social Security calculator being used by Democrat Senate leadership: “The calculator is rigged.”

Those are the exact words used by factcheck.org. The report points out that Democrats have been using a web-based “calculator to generate individual answers to the question “How much would you lose under the Bush privatization plan?” Factcheck.org goes on to mention that a $1-million TV ad campaign is being launched to amplify their message—but the message is based on faulty numbers.

Factcheck.org says about the calculator:

“In fact, the calculator is rigged. We find it is based on a number of false assumptions and deceptive comparisons. For one thing, it assumes that stocks will yield average returns of only 3 percent per year above inflation. The historical average is close to 7 percent.
The calculator's authors claim that they use the same assumption used by the Congressional Budget Office. Actually, CBO projects a 6.8 percent gain.”

The difference between a 6.8 percent return and a 3 percent return compounding on income saved over a working lifetime of 45 years is enormous—big enough so that the question being asked by the calculator would have to be changed to “How much would you gain under the Bush privatization plan.” But the calculator is being used to attack personal accounts, so it would not be a very useful political tool if it showed PRAs benefiting participants.

In the “Analysis” section of the Factcheck.org report, they point out that the fraudulent calculator first appeared on the website of Sen. Harry Reid of Nevada and that various versions of it are appearing currently on the websites of 16 Democrat senators. It is also on the website of Americans United to Save Social Security —a coalition that includes labor groups like the AFL-CIO and the anti-ownership society activist site Moveon.org.

The rigged assumptions used in the calculator are available for all to read in the fine-print on the bottom of the site. There, it says: “The calculator assumes that your investments get a rate of return of 3 percent above inflation.” No one can predict the future, but this number is so far below the historical 6.8 percent return above inflation that the market has yielded for the past century as to seem absurd.

Peter. A Diamond, Professor of Economics at the Massachusetts Institute of Economics, who is not known as a supporter of personal retirement accounts, is quoted as telling Factcheck.org “values around 6 percent or 6.5 percent seem to me appropriate for projection purposes” which is in line with the 5.5 to 6.5 percent above inflation returns estimated by the independent economists consulted by the bipartisan Social Security Advisory Board in 2001. That’s double the figure used by the Democrats’ rigged calculator. Factcheck.org quotes other professors who agree that we can expect returns closer to 6 percent.

The calculator’s authors justify their 3 percent return assumption by claiming it is "the same assumption used by the CBO for its Social Security analysis." Factcheck.org called CBO's director, Douglas Holtz-Eakin and reports this conversation:

“FactCheck.org: Does CBO's use of a 3 percent "risk-adjusted" figure constitute a prediction by CBO that equities (stocks) will return only 3 percent in the future?

Holtz-Eakin: That's the way it’s been portrayed. That's wrong. We assume that equities will return 6.8 percent in the future.”

These faulty numbers are being spread around the country in a TV ad generated by a new organization called Protectyourcheck.org which is headed by former Clinton advisor Harold Ickes, who also led the multi-million dollar Media Fund campaign against Bush in the 2004 elections. Their ad implies that seniors today will see their benefits “cut almost in half.” Factcheck.org mentions that there are no plans by anyone to do this and, even using their fraudulent calculator, the only way to get a number approaching 50 percent is to put in a birth year of 2005.

Factcheck.org also points out that the calculator makes assumptions about what Bush’s plan would do—despite the fact that Bush has not set down a specific plan, but rather has laid out some general principles. For example, he will not support raising taxes, and those over 55 will not be affected, and those under 55 will be allowed to save some of their Social Security tax dollars in accounts they own and control. Specific plans have been introduced by several members of Congress that can be easily compared at on a new chart organized by the Cato Institute.

Both the ad and the calculator make their benefit cut claims based on proposed benefit increases under current law. Factcheck.org point out that one of the problems with this—and one of the reasons we are even having this debate today—is that “current tax rates can't support those benefit levels.” This is a fact they draw from the latest Social Security Trustees report.

According to the Trustees Report, unless taxes are raised considerably, benefits would have to be cut 26 percent by 2041, with cuts increasing from there. To this, Factcheck.org replies, “Compared to the actual level of benefits that can be supported by the current system, Bush's supposed "cuts" would be much smaller. Put another way, maintaining benefit growth at the level assumed by the calculator and the ad would require a tax increase, something not mentioned.”

Factcheck.org closes by linking to a recent article in which they faulted President Bush for saying accounts “will” grow fast enough to provide better returns than the current system because no one can say for certain— which is right. But they also point out that “history offers no support for such a pessimistic prediction, and neither do economists consulted by the bipartisan advisory board to the Social Security system.”

It is unfortunate that so much misinformation is being used to attack the proposal for personal retirement accounts. Having enough money for retirement is a very important issue, and deserves better, honest debate.