Promise and Peril For Black Workers
When President Franklin Roosevelt signed the Social Security Act in 1935 he could not foresee that social security would penalize black men for dying much earlier than white men, women and black women. A black male worker that earns the same amount as a white male worker will lose tens of thousands of dollars due to earlier death. Black workers also earn less, have fewer tangible assets than whites, and are less likely than whites to be covered by a private pension plan. Since social security benefits aren't inheritable, when black workers die, their accumulated benefits can't be shifted to heirs. Though in recent years the mortality gap between black men and whites has narrowed, it has not eliminated the social security benefits gap. Black men still die earlier than the whites, and they still collect much less as individuals than whites or black women.
The inherent unfairness in the benefits that blacks and whites receive from social security essentially transfers public wealth from poor black workers to high-end white retirees. Some blacks have branded this as reverse reparations. Bush has staked his domestic White House legacy on partially privatizing social security. He will try to sell African-Americans on the notion that they will be the big winners in his plan. They will have more wealth, and there will be no tax increases, or benefit reductions. Blacks would take a portion of their social security taxes and dump them in private investments that earn bigger returns than social security pays. Bush's partial privatizing plan supposedly would help close the age-old racial gap. It's a compelling argument that mixes peril and promise.
If black workers placed a portion of the social security taxes paid into a private account (Bush's commission on social security restrict investments to a handful of diversified mutual funds), their return would be potentially higher and when they died their heirs could collect on their assets. If, and this is a huge if, there's no market collapse, and their investments yield a steady, safe and long-term rate of return, their retirement income jumps.
To earn that potential extra income from private investments they will have to siphon off a portion of money earned during their prime earning years that would have gone to their social security contributions. It's a Hobson's choice. If the investments pay off they win big. If they don't they lose even bigger when they retire. In the past two decades the market has been a crapshoot.
Through much of the 1990s, stock funds roared with returns as high as 50 percent. In 2001, the market rapidly slid south and there were market losses upwards of 20 percent. Private fund accounts are not indexed to inflation. Social security benefits are.
The overwhelming majority of blacks age 65 or older depend solely on social security payments for more than half of their income. More than one third of older blacks depend on the payments for their entire income. A cut in benefits that Bush says won't happen would be disastrous. They would sink into deep poverty.
There's a double-edged sword for blacks in the disparity in social security. Because of their shorter life expectancy, lower pay, and the likelihood that they work in more hazardous jobs than whites, proportionally they receive more social security disability benefits than whites. A greater proportion of their children receive surviving child benefits than white children, and the wives and husbands of disabled black workers receive a higher percent of benefits than whites. The racial double-edge hasn't closed the benefits gap between blacks and whites, but it narrows it.
In the scariest scenario, social security will plunge into chronic debt in 2015, and will go belly up a couple decades later. If nothing is done to stop it, there will either have to be big hikes in taxes, big cuts in benefits or both. Even if this doom scenario doesn't happen, the relentless increases in social security taxes during the past decade have taken big bites out of the paychecks of black workers. This has markedly decreased their buying power. The prospect of even bigger payroll tax hikes to finance a tottering system would further stack the deck against lower income black workers. Middle-income, and wealthy workers don't pay taxes on income that exceeds the cap on social security taxes. With fewer investment assets, much of it untaxed, than whites to offset the loss of income due to the tax increase, blacks will bear the full brunt of any future tax hikes.
The Bush plan is designed to stave off social security's pending fiscal implosion. The by-product, conservatives, say is that it will close the still gaping benefits, and maybe even the wealth gap as well, between blacks and whites.
This is a great goal. But the risk to achieve it is just as great, if not greater.