How raw a deal is Social Security for black Americans? Citing research by Harvard professor and former Clinton Administration official Jeffrey Liebman, President Bush’s Commission to Strengthen Social Security concluded last August that blacks “receive nearly $21,000 less on a lifetime basis from Social Security’s retirement program than whites with similar income and marital status.”
Largely due to differences in life expectancy, Social Security essentially pumps money from the pockets of blacks into those of whites. Having survived childhood diseases and youth violence, 25-year-old black men starting work in 1999 could expect to live to 70.2 years versus 75.9 for white males, the National Center for Health Statistics reports. Black women could expect to reach 76.4 years compared to 80.8 for white females.
These were among the sobering facts discussed at a recent conference on black Americans and Social Security at the libertarian Cato Institute in Washington. Key socio-economic distinctions between average black and white Americans explain why Congress urgently should adopt President Bush’s plan for personal retirement accounts. Such a reform would promote the general welfare and dramatically advance the financial prospects for black Americans in particular.
A typical, two-earner couple born in 1970 can anticipate a 2.24% return on their payroll taxes, the Social Security Administration estimates. “That’s as close to lazy money as you can get,” laments Harry Alford, president of the National Black Chamber of Commerce. “We can get better returns on investment than that.” In fact, according to a Chicago-based financial consultancy called Ibbotson Associates, the S&P 500 delivered average, inflation-adjusted, annual returns of 7.4% between 1926 and 2001, even accounting for the Great Depression, World War II, Vietnam, Watergate, that 1970s energy crisis, and the 1990-91 and 2001 downturns.
If blacks could own their own retirement assets, “your money should be assignable to your heirs when God calls on you,” as Alford puts it. Today, Social Security makes modest payments to spouses and minor children. However, unlike life insurance benefits or inheritance, adult children get zippo from Social Security when parents pass away.
Median black households had just $3,060 in financial and retirement assets in 1998, compared to $17,400 for median U.S. households. Personal retirement accounts would narrow the gap. Estate planning should become a routine black experience. Even the Rev. Jesse Jackson appeared to grasp this when he declared that “capitalism without capital is just an ism.”
Where would blacks find this money? President Bush wants to offer Americans of all hues the option of dedicating between 2 and 4 percentage points of their Social Security taxes to accounts that they would own and manage. Since those funds already are drained from their wages, this would require no additional out-of-pocket expense. As Star Parker — a former welfare recipient and founder of the Coalition on Urban Renewal and Education — describes today’s scheme: “Social Security takes 6.2 percent from black Americans’ paychecks, forces their employers to match that 6.2 percent, then throws both into a black hole that workers cannot transfer or control.”
Social Security’s defenders respond that blacks are likelier than whites to receive disability benefits under the program, thus, they claim, enhancing the system’s appeal for blacks. However, the disability program is separate from the retirement fund, and President Bush has no plans to change it. Moreover, this argument essentially says that blacks must become disabled in order to gain respectable returns from Social Security. How insulting.
Despite the civil rights establishment’s fealty to Social Security, rank-and-file blacks support privatization. A February 2001 Zogby survey for Cato revealed that 53.5% of blacks favor personal accounts. President Bush should rally black Americans as his secret weapon once this battle is joined.
He also would be wise to stump with Herman Cain. The chairman of Godfather’s Pizza is a prominent black business executive and one of Social Security modernization’s most persuasive and entertaining advocates. Cain says that at age 56, he already has paid $161,000 into Social Security. In the next 10 years, he expects to add another $74,000 to the system.
“If that’s going to be a transfer from me to white people,” Herman Cain wonders, “can’t I at least give it to white people I like?”