01 Feb 2005 Why African Americans Should Be Leading The Charge For Social Security Reform, by Eddie Huff

By calling for Social Security reform, President Bush has signaled he is serious about taking on the “third rail of American politics.” This comparison to the lethal electric rail on a subway implies that politicians risk certain death – or at the least getting seriously burned – should they take up the issue.

By now, it’s understood President Bush says what he means and means what he says. As was the case regarding Iraq, the President seems unafraid to take on this very difficult mission. But, as with Iraq, the administration seems to be inept at communicating the problems faced by Social Security and the benefits of reform.

African-Americans can and should be the strongest proponents of Social Security reform for one simple reason: Transferability.

Elizabeth McDonald said on Forbes on Fox: “The Bush Administration should be out there every day driving home the fact that the new system will allow you to pass Social Security benefits on to your survivors regardless of the circumstances.”

As a financial advisor, I deal with estate planning every day. In my experience, Black Americans seem least likely to properly plan for and take the necessary actions required to leave an behind estate of any real worth. Some of this can be attributed to lower income levels and poverty, but that is not always the case.

While other groups often leave enough behind for their survivors to build upon, successive generations of African-American families appear to have to start from scratch. It is like rolling a large stone up a hill all of one’s life, only to let it roll back down at the end. Then their kids must roll it back up again. The insane, vicious cycle continues.

Surviving spouses and children under 18 years old now receive Social Security benefits if a worker dies before age 65. Once the child turns 18 (or 23, if a full-time student) or the spouse dies, the funds disappear. President Bush has discussed making the funds transferable in the future, so they can be passed on like life insurance.

This is something Black America understands. The Bush Administration needs to drive home the fact that transferability is a key facet of reform.

Latching onto terms like “private accounts” and “privatization,” liberal opponents of Social Security reform want people to think they would be totally responsible for investing and managing their own money. They seem to think people are not sophisticated enough to make the right financial decisions. They imply there are disreputable businessmen waiting to get rich while haphazardly squandering peoples’ money.

This is simply not true. Reform proposals still make paying FICA taxes mandatory and benefits unavailable until retirement or death. There would not be unlimited freedom to invest in fly-by-night hedge funds. Proposals call for strict guidelines and oversight of the bond or equity funds allowed for investment.

New savings plans can range from the conservative to more aggressive, regulated based upon age. It is geared toward creating greater savings rather than simply sitting in a general fund (into which Congress now dips its sticky fingers).

The biggest difference remains the fact that the money is never lost due to death.

But the President’s current arguments for reform do not go far enough. For instance, only a small portion of FICA taxes are to be set aside for personal accounts. The majority still goes into the general fund, supposedly to protect current beneficiaries and those about to retire. How about expanding it to half or more? The idea that people cannot control their money tends to prevail in Washington, especially among those on the Left.

And when critics say the President’s proposals are geared to the rich, remember that FICA taxes only apply to the first $89,800 of one’s salary. Anything more is untouched. That means someone earning $1,000,000 doesn’t pay FICA taxes on over $910,000 of their salary. Most people pay up to 15.5 percent on their entire income. The President wants the ceiling raised.

Do the math. The rich would contribute more money per paycheck under this Social Security reform.

To cut through all the rhetoric, consider the options: Under the current Social Security plan, when you die, your spouse dies and your kids are over 18, the government keeps your money. Under reform proposals, when you die, you get to pass on the money – your money, and hopefully more of it – to your survivors.

Any questions?