Social Security is Unfair to Black Americans
by John Meredith
A New Visions Commentary paper published March 1999 by The National Center for Public Policy Research, 501 Capitol Ct NE, Washington, DC 20002, 202/543-4110, Fax 202-543-5975, E-Mail [email protected]. Reprints permitted provided source
If a group of strangers living far away asked you to give them a part of your paycheck every time you got paid, and in return offered to give you part of the money back after you retired, would you take the deal?
Probably not. Yet that's what many black Americans do every time they get paid because this is what happens when they pay their Social Security taxes.
Single, black low-income males born since 1959 who earn about 50% of an average wage, for instance, will get back only 88¢ for every dollar they pay in Social Security taxes.
That's because the life expectancy of these men is shorter than it is for many other groups. As a result, says a Heritage Foundation study, these black men live long enough to pay Social Security taxes but not long enough to get their money back.
Black Americans who aren't rich give an eighth of their income to Social Security. Many of them will never see that money again.
Even when black Americans do get their money back from Social Security, it's not necessarily a good deal. Black women do better under Social Security than black men because black women tend to live longer. But a single black American 21-year-old mom who makes the average wage for black American females can expect only a 1.2% rate of return on her Social Security taxes. Had she invested her money elsewhere, she could have made far more.
Another Social Security problem for black Americans is that the Social Security tax is regressive. In other words, it takes a larger percentage of the pay of low-income workers than from their high-income counterparts. According to a National Center for Policy Analysis study, the average low-income individual is taxed 12.4% of their pay for Social Security retirement and disability programs while persons earning a million dollars a year pay less than 1%.
An appealing solution to the current Social Security problem that would be fair to black Americans is a partial privatization of the Social Security system. Under such a plan, workers would contribute to a private savings account that is owned and controlled by each individual worker. Because these accounts would provide a higher rate of return to the worker than Social Security now does, the worker would end up retiring with a lot more money.
An additional advantage of privatization is that if the contributor does not live to retirement age or does not use all the money in their account, the federal government would not confiscate the funds, as is now the case. Instead, these leftover retirement funds would be part of the worker's estate, left to his or her children or grandchildren, or to a church or favorite charity.
Another benefit to setting up private retirement accounts instead of paying Social Security taxes is that workers could pay less now and still enjoy a financially secure retirement. In their new Cato Institute book, A New Deal for Social Security, Peter J. Ferrara and Michael Tanner point out: "A privatized retirement system would not require payments as large as the current Social Security system, because the investment returns of the private system can provide several times the benefits for the same amount of payments."
Black Americans should, in no uncertain terms, tell all their elected officials that reforming Social Security so it is no longer unfair to their community is a precondition for any further political support.
(John Meredith is a member of the African-American leadership network Project 21 and is a board member of two community-based non-profit organizations, a consultant for an educational organization and the national co-chairman of minority outreach for an independent election monitoring organization.)
Note: New Visions Commentaries reflect the views of their author, and not necessarily those of Project 21.
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