Should African-Americans Favor Privatizing Social Security? By B.B. Robinson, Ph.D.
A New Visions Commentary paper published August 2001
Reprints permitted provided source is credited.
For the past couple of weeks, major newspapers have carried stories about new efforts to privatize the U.S. Social Security System (SSS). Although the real battle to effect this change is far from beginning in earnest, African-Americans would be well advised to begin considering where they come down on this issue. Should African-Americans favor privatization of Social Security?
Before providing an answer, let's consider a few facts about the current state of Social Security.
From the outset, Social Security privatization was part of President George W. Bush's campaign platform. Importantly, the President received significant support on this issue from at least three major think tanks: the Cato Institute, Heritage Foundation, and National Center for Policy Analysis. Therefore, it was no surprise when the President organized his Commission to Strengthen Social Security having the expressed purpose of considering some form of privatization as a means of solving the Social Security problem
It also was no surprise when, in a kind of mini-kick-off to the present Social Security privatization effort, Secretary of the Treasury Paul H. O'Neill met with the Coalition for American Financial Security (CAFS) in New York on June 18. CAFS is raising millions of dollars to lobby Americans to board the privatization bandwagon.
Although the build-up has proceeded slowly, there appears to be a real and sustainable plan to methodically address the Social Security problem and to make some form of privatization part of the solution. Unfortunately, it is too early in the game to know the full design of the forthcoming plan. What is clear, however, is that the plan is likely to have important and long-term implications for all Social Security participants. Also, awareness of CAFS's efforts as described almost guarantees that you will be lobbied on this issue. Do you now have an answer to the question?
Social Security has faced the insolvency music before, and I have posed the question before. In a Spring 1994 issue of The Black Scholar, in an article entitled "Disparity in Present Value Net Social Security Wealth," it is written: "African-American males benefit negatively by participating in the SSS because their level of consumption is reduced during working years by the amount of SSS taxes they pay and they have only a 53 percent chance of ever receiving SSS retirement benefits." (p. 22)
The article showed that the average African-American male had prospects of paying over $95,000 into the Social Security, but had prospects of receiving less than $46,000 in benefits (all in 1994 value terms). Obviously, these are not favorable terms. Most importantly, as already stated, African-Americans males had only a 53% chance of ever collecting benefits due to their short life expectancy. Although the article addressed the participation of African-American males in the SSS, outcomes are not much more favorable for African-American females. Relatively speaking, the outcomes discussed in the article have not changed much in the past seven years. Therefore, I feel confident in answering the question in the affirmative.
Yes, African-Americans should favor Social Security privatization. Why? Because it will ensure that African-Americans have more control over their hard-earned resources. Also, an early demise will not result in African-Americans simply contributing to a Social Security surplus, because heirs will have a right to savings generated under the privatized system.
Most importantly, African-American participants of the privatized system will be forced to learn how to invest their savings wisely for retirement. This will make us more astute financial planners, which is a very positive outcome.
So start reading the financial pages, sharpen your pencils and seriously consider answering yes when the Social Security privatization question is posed to you.
(B.B. Robinson, Ph.D. is a member of the National Advisory Council of the African-American leadership network Project 21 and an economist. He can be reached at [email protected].)
Note: New Visions Commentaries reflect the views of their author, and not necessarily those of Project 21.
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