Last month on National Public Radio, I debated David Certner, director of federal affairs for AARP, the seniors advocacy group. The topic was Social Security reform. I spoke in favor of individual private accounts, which AARP opposes.
Setting the record straight on Social Security rates of returns and Blacks is long overdue. Blacks have a huge stake in this debate. A recent study by AARP presented to the Congressional Black Caucus showed that 50 percent of Black Americans age 65 and older depend on Social Security for 90 percent or more of their income. For these folks, Social Security is nearly their sole source of retirement income.
This dependence leads most Black leaders to say, “Social Security is critical to our community, don’t change it.” AARP echoes their concerns when it says, “Personal saving and investment should be done in addition to Social Security, not in place of it.”
But change cannot be avoided if you want to save the concept, and it is needed.
In the State of the Union address, President Bush focused on the year 2018 rather than 2042, because that’s when benefits first exceed revenues from payroll taxes. To put this debate in perspective, the president paid tribute to Social Security reform ideas set forth prior to him by Democrat members of Congress. One of the names he mentioned was the late Senator Daniel Patrick Moynihan of New York. Ironically, it was professor Moynihan who cautioned the country regarding a trend developing within the Black family–which was overlooked at the time.
When Social Security was created in 1935, the normal retirement age was 65 and the average life expectancy for white males was 67 years. This meant that a worker would be paying into the system for over 40 years but collecting, on average, just two years’ worth of benefits. Back then, there were 30 to 35 workers paying Social Security taxes for every one person receiving benefits. The tax rate for employees was only 1 percent. Did this policy cheat Black Americans?
The short answer is a clear yes! In a December 11, 1998, report, “Social Security’s Rate of Return,” The Heritage Foundation showed that Black Americans generally receive a much smaller return on their “investment” of Social Security taxes than whites. The report stated, “A major factor in African Americans’ poor returns from Social Security is the sad fact that so many black workers die before they can receive significant benefits. When measured in terms of the proportion of a worker’s pre-retirement income that is paid in Social Security benefits, all lower income workers receive more than higher income workers do. However, they often receive these benefits for a shorter period of time.”
As this debate mushrooms, Blacks are being targeted by both sides in this debate. What’s interesting is that young Black voters will have a lot to say in this debate. Congressman Harold Ford (D-Tenn.) warns that the existing system “provides a measure of security for retirees, but it cannot be passed on to provide financial security for their children and grandchildren. The key to retirement security and upward social mobility is wealth creation.”
An article in the February 1 issue of the Wall Street Journal presented an excellent bipartisan explanation of this change. “In 1960, there were five workers for every Social Security beneficiary,” it said. “Today, there are slightly more than three. In 30 years, there will be only two. That means fewer tax-paying workers to support more benefit-receiving retirees.”
Blacks would be right to oppose private accounts if it were true they would cause reductions in Social Security benefits for current beneficiaries and programs for the poor. But this does not have to be the case. People already retired or about to retire can be guaranteed their full benefits. Middle-aged people can be given a choice of whether to join a new system with private accounts or stay with the current program.
Lee H. Walker ([email protected]) is a columnist and member of the Chicago Defender’s editorial board. He is president of The New Coalition for Economic and Social Change and is a senior fellow at The Heartland Institute.