Privatizing Social Security: do African Americans stand to gain from President Bush's controversial plan?

One of the biggest debates brewing on Capitol Hill this year involves President George W. Bush's desire to overhaul the nation's Social Security system. So far, the proposals being bandied about are broad in scope. But since he first ran for national office in 2000, Bush has argued that workers should be allowed to divert some of their Social Security payroll taxes into private accounts, which they would then control. He is fond of using words like ownership and responsibility to make voters comfortable with the idea, while at the same time sounding the alarm about the program's solvency.

For Democrats like Ohio Rep. Stephanie Tubbs Jones, the operative word is security. By privatizing what was designed to be a guaranteed benefit, the government is putting the financial security of African Americans and other minorities at risk at a time when they need it most.

"For minorities in this country, this privatization plan would jeopardize protections that have come and continue to be of particular importance to people of color," says Jones. "Social Security was never intended to be an individual retirement account. It. was intended to be just what it says--a social security that provides benefits to those most in need. For us to now change that program to an individual account makes no sense at all."

According to Jones, who sits on the House Ways and Means Subcommittee on Social Security, African Americans age 65 and older depend heavily on Social Security (see Facts & Figures, this issue). A General Accounting Office report states that only 28% of African American retirees have a pension fund other than Social Security. Living on already modest incomes, they can ill afford benefit cuts--a subject Jones says the president is less eager to discuss.

However, Bush is trying to sell African Americans on the notion that they will be the big winners in his plan to privatize Social Security by stating they will have more wealth and there will be no tax increases or benefit reductions. Blacks would move a portion of their Social Security taxes into private investments that can earn bigger returns than Social Security currently pays out. Bush argues his partial privatizing plan would help close the age-old racial gap.

While African Americans depend on Social Security disability benefits more than whites, when it comes to the retirement portion, it's more an issue of income than of race, says Matt Moore, a senior analyst with the National Center for Policy Analysis. "Lower income people tend to rely on Social Security more than higher income people and it is for those people that we need to reform the system," he adds. "Social Security as it is currently structured cannot afford to pay all of the benefits it is promising to pay."

Moore believes personal retirement accounts make a lot of sense for African Americans because they have not set aside money to invest in retirement funds at the same rate as their white counterparts. "What we're talking about doing is taking some of the taxes that they're already paying and allowing them to put that into a personal account. We're not talking about taking new taxes from workers." Of course, there's no guarantee that such investments would generate an adequate return, but Moore argues that there are no absolutes with the current system either.

Insolvency is not an immediate crisis, says William Spriggs, a senior fellow at the Washington, D.C.-based Economic Policy Institute and a member of the BLACK ENTERPRISE Board of Economists. "The tax cuts the president wants to make permanent are large enough to close the actuarial gap the nation is facing 45 to 75 years from today. That money could be devoted to making Social Security solvent. Privatization is going to take money out of the system."

Citing a recent study by the Center on Budget Policy Priorities, Jones says that individual accounts would significantly increase federal borrowing for at least several decades, increasing deficits and borrowing by $1 trillion to $5.3 trillion over the next 10 years. "I believe that long-term balance for Social Security can be achieved through modest revenue and benefit adjustments that will begin to reduce the deficit within the next 10 years," she adds. Examples are smaller cost-of-living increases for retirees or slightly smaller benefits for people who earned high incomes.

Most of the money that is being collected today is going into the Social Security program to pay benefits to current retirees. Through a privatized program, "there will be a shortfall initially until people with accounts start retiring and easing the burden on the government," concedes Moore. "It's called transition cost, and it's currently calculated to be $2 trillion."

Seniors are not the only ones likely to be affected. Social Security provides income to a significant number of African Americans--many of them young--under its disability and survivor programs. African Americans represent 11% of the labor force but constitute almost 18% of workers receiving Social Security disability insurance benefits. Roughly 21% of children of disabled workers who receive benefits are African American.

If disability benefits are cut, argues Spriggs, there is no guarantee that the loss can be made up by private disability insurance. In fact, he predicts, those rates will soar. "Currently, you get the same benefit whether you retire or become disabled," he says. The people selling private disability insurance know you're getting 40% of your income from the government and they only have to provide the amount above that. They're not going to want to make up [any loss in benefits]."