01 Aug 1997 How Social Security Shortchanges Black Americans, by Deroy Murdock

By yesterday’s definition of racism, the answer is no. For all its failings, Social Security was concocted in 1935 with glowing intentions. Rescuing the elderly from poverty — regardless of race — is an idea to which only the flintiest would object.

By today’s definition, however, a negative “disparate impact” on minorities trumps even the most pristine motives. Perhaps Social Security should be investigated by the Equal Employment Opportunity Commission.

As it is, Social Security is a legalized pyramid scheme built atop unstable demographic sands. It threatens to collapse into rubble once the Baby Boomers retire and Generation-Xers begin carrying them around like so many passengers on an overworked camel.

Worse yet, Social Security is a bad idea for black Americans given the troubling disparities in what blacks and whites get out of the program. Because blacks tend to have shorter life expectancies than whites, they often find themselves outlived by their benefits.

The National Center for Health Statistics reports that black males born in 1992 can expect to live to age 65, while white males born that same year can plan to live 73.9 years. While black females born in 1992 can expect to 73.9 years of life, white females are expected to spend 79.8 years on Earth.

Since older retirees collect more benefits from those who pay into the scam, Social Security essentially transfers money from working black men and women (who die earlier) to older white women who live the longest. This quickly raises a fundamental question: Given that the retirement age will increase to 67 by the year 2027, is it fair to expect young black men to support a scheme that will not provide them with pension benefits until two years after they can expect to die?

Another factor that compounds this problem is that a lower proportion of blacks tend to enroll in college than do whites. In 1995, only 51 percent of black high school graduates advanced to college. While 63 percent of whites began their post-secondary studies. Consequently, more young blacks begin their working lives earlier than young whites, and thus start paying into Social Security sooner. Nonetheless, as the Cato Institute’s Michael Tanner explains: “Because Social Security benefits are based only on the last 35 years of an individual’s work history, they will receive no additional benefits despite paying taxes for more years.”

Many Americans have begun to brace themselves against Social Security’s impeding turmoil by setting up mutual funds, 401(k) plans and other investment strategies. Most likely due to of their average incomes being lower than those of whites, black Americans lag way behind in this area.

General saving is also affected. The Santa Monica-based Rand Corporation found that slightly older black households (populated by those between 51 and 61 years of age) had mean financial assets of $12,780 while similar white households enjoyed assets of $72,571. Nearly six times as much.

Inescapable Social Security taxes aggravate this problem. Since individual black incomes tend to be lower than those of whites ($19,722 versus $26,696 on average in 1994), many blacks have little left after-taxes to invest.

FICA taxes also consume money that otherwise could be invested in black neighborhoods.

Whether it’s saving funds to open a small business or simply spending more disposable income at black-owned stores, FICA taxes impede these worthwhile activities in America’s black communities.

Millions of Chileans, Argentines and Mexicans have learned that there is a better way. Replacing the Porgy and Bess-era Social Security program with 21st Century private pension accounts would benefit Americans in general and black Americans in particular.

Americans should be free to pay their FICA taxes into their own private retirement accounts which they would invest in private capital markets. These individually-held assets would appreciate through rising stock and bond prices as well as compounded interest and investment returns. This will help blacks gain the retirement security so many now lack.

In a Chilean-style system, Americans could retire as soon as their savings could finance pensions equal to 50 percent of their wages. Blacks could stop racing against their life expectancies and to retire before age 65. Also, money accumulated in these accounts could be passed down to one’s heirs — something forbidden in today’s system. Privatization would allow more blacks to build and bequeath estates to rival those of wealthier whites.

While there is no need for blacks to segregate their money in black-owned financial institutions,

some may choose to do so. This would create huge opportunities for black financial managers. Black entrepreneurs also would have easier access to capital as financial institutions look for places to invest pension deposits.

Replacing the current socialist system with an endowment mentality would help bring a sense of promise to many black Americans whose communities have been undermined by an entitlement mentality that discourages work, sacrifice and long-term thinking. It would also present them with the possibility of reaping the benefits of their hard work and investments. A new system of individually owned, privately controlled retirement accounts will improve the lives of all working Americans, especially Social Security’s unintended black victims.

(Deroy Murdock is president of Loud & Clear Communications and a member of the Black American leadership group Project 21.)