President Bush’s Commission to Strengthen Social Security convened July 24 at the Capital Hilton here to approve an interim report on the future of Uncle Sam’s largest program. Their findings were as crystal clear as the chandelier that dangled over their conference table, though far less lovely.
”Unless we move boldly and quickly, the promise of Social Security to future retirees cannot be met without eventual resort to benefit cuts, tax increases, or massive borrowing,” wrote the commission’s co-chairmen, former senator Daniel Patrick Moynihan (D., N.Y.) and AOL-Time Warner’s co-Chief Operating Officer Richard Parsons. Longer life spans and lower birth rates will cause benefit payments to outrun revenues in 2016. By 2020, a draft of the study states, “required cuts would equal the combined size of Head Start, WIC, the Departments of Education, Interior and Commerce, and the EPA.”
The panel also lamented that in today’s structure, “workers ‘invest’ their payroll taxes not in financial assets but in the willingness of future politicians to tax future workers to pay future benefits.”
The commission is expected this fall to unveil a plan for Social Security Choice: a new system of optional, private accounts in which Americans could invest up to 2 percent of their payroll taxes in market-based securities. This would benefit everyone, but especially black Americans who get the short end of the rickety stick that is Washington’s giant pension scheme.
Due to shorter life spans, blacks simply collect less of what they pay into Social Security. Harvard professor Jeffrey Liebman reports that black Americans receive almost $21,000 less in Social Security retirement benefits than whites with comparable incomes and marital situations.
According to the National Center for Health Statistics, a black male born in 1999 could expect to reach 67.8 years of age. Given that he would be ineligible for full benefits until age 67, he could anticipate about 10 months of Social Security checks before keeling over. The equivalent figures are 74.6 years for white males, 74.7 for black females and 79.9 for white females.
Social Security’s advocates state that blacks benefit more than others from this entitlement’s disability and child survivors’ components. It is cruel to argue that blacks should stay trapped in a retirement plan that only pays off if they get injured. Nonetheless, Moynihan adamantly told the commission: “There is no question that we will keep the survivor’s and disability programs. They are integral to the system.”
Social Security Choice also would help blacks close the asset gap. The median U.S household in 1998 held $17,400 in financial assets, including retirement funds. For black households, the figure was just $3,060. Allowing black Americans to invest their own tax money will bridge this dividend divide.
“I want to get people out of being totally dependent on government transfers for their well-being at retirement and get them to depend on the great wealth creation machine that is the U.S. economy,” Robert Johnson — a commission member and CEO of Black Entertainment Television — told me. “You’ll create an inheritance situation for families that doesn’t exist under the current system.”
Johnson eagerly awaits the day when black parents routinely bequeath nest eggs to their children and favorite charities. Though he is a Democrat, he financed newspaper ads last spring to endorse President Bush’s repeal of the estate tax to keep it from burdening black families trying to accumulate and transfer capital between generations. Johnson’s vision mirrors that of the late Reginald Lewis, a self-made black entrepreneur who bought Beatrice, Inc. for a billion dollars. As Lewis used to ask, “Why should white guys have all the fun?”
Social Security reform already is popular among blacks. In a July 11–12 survey, pollster Scott Rasmussen — author of the new book, A Better Deal: Social Security Choice — found that 66 percent of blacks favor giving workers the option of establishing their own personal retirement accounts. “It doesn’t make sense for poor, black Americans to subsidize the benefits of wealthier, white Americans,” Rasmussen says. “With choice, that won’t happen anymore.”
Once his commission unveils its detailed plan, G.W. Bush should visit black audiences with Robert Johnson and Richard Parsons, another black American. The President should use those occasions to sell Social Security Choice to the entire country by explaining how financial markets can help every citizen — from Harlem to the Hollywood Hills.