01 Jan 1999 Black Americans Would Benefit From Private Social Security Accounts

President Clinton’s announcement in his January State of the Union speech that he supports investing Social Security funds in the stock market was a half-step in the right direction for saving Social Security. Unfortunately, the President’s prescription did nothing to end a pervasive problem with the current system: As currently structured, Social Security is unfair to many Americans, particularly, blacks and other minorities.

The President needs to take another step in the right direction, and allow individuals to privately invest all or part of the money they currently pay to the government in Social Security taxes. The Social Security system will only become fair for all Americans if everyone can control their own retirement accounts.

Deroy Murdock of the African-American leadership network Project 21 has explained why the current Social Security system is unfair to blacks: “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.”

In other words, African-Americans live long enough to pay into Social Security, but, on average, not long enough to benefit from the system either at all, or, if they do benefit, at the same rate as white Americans.

Adds Murdock: “Since older retirees collect more benefits… 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?”

Social Security experts William W. Beach and Gareth G. Davis of Washington’s Heritage Foundation agree with Murdock’s analysis. They say: “A low-income African-American male age 38 or younger is likely to pay more into Social Security than he can ever expect to receive in benefits after inflation and taxes. Staying in the current system will likely cost him $160,000 in lifetime income. Today’s Social Security system threatens the ability of too many minorities to realize the American Dream.”

Beach and Davis’s calculations show that a single black male now in his mid-20s can expect to get back just 88 cents for every dollar he pays in Social Security taxes. If the same man were allowed to invest his Social Security taxes in safe U.S. treasury bills instead of giving the money to the Social Security Administration, Beach and Davis say, he would make $79,846 in profit instead of suffering $13,377 in losses.

Beach and Davis also conclude that a single African-American 21-year-old woman can expect to receive a scant 1.2% return under Social Security by the time she retires. If the same woman placed her Social Security taxes in safe government bonds, they calculate, she’d receive a 3% return, netting herself an extra $74,000 in retirement income.

The Social Security Administration estimates that thirty years from now it will take in only enough in taxes to pay about 75 percent of the benefits Americans are expecting. This fact is proof enough of the need for reform. But any reform must be fair to all Americans. One way to achieve this fairness, while rescuing the entire Social Security system, is to permit Americans to invest their Social Security taxes into privately controlled interest-earning accounts. Such accounts would give all Americans a greater rate of return – and thus more money – for their retirement years. Every American would also get every penny they are entitled to – regardless of their color.

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(Horace Cooper is a member of the National Advisory Board of the African-American leadership network Project 21 and serves on the leadership staff of House Majority Leader Dick Armey.)

Note: New Visions Commentaries reflect the views of their author, and not necessarily those of Project 21.