By Maya Rockeymoore, Ph.D
Just in time for Black History Month, the nation enters a dialogue about race that could have important socioeconomic implications for generations of African Americans. At issue is President Bush’s charge that the Social Security system is unfair to African Americans because they do not live as long as whites and cannot draw down on retirement benefits and that they would do better financially if the nation embraced a privatized system of individual accounts that can be invested in the stock market.
Bush’s History with Blacks
While there is a stark need for a plan of action addressing race-based income and health disparities, of surprise to many is that President Bush and prominent members of the Republican Party have introduced this conversation.
After all, these are the people who have spent the last four years providing tax relief for the wealthiest Americans while laying the groundwork for dismantling the very programs that have helped blacks mitigate the effects of centuries of deprivation.
Among the health and wealth creation vehicles on the President’s chopping block are Affirmative Action, Perkins loans, Community Development Block Grants, empowerment and enterprise zones, Section 8 and Hope VI federal housing subsidies, minority health disparities research, and Medicaid. Each of these policies have been important for elevating the socio-economic condition of African Americans in the post-Civil Rights era, yet they have been challenged, seriously curtailed, or eliminated under the Bush Administration.
Now, despite overwhelming evidence to the contrary, African Americans are expected to take the GOP’s newfound interest in their socio-economic security at face value. This exercise in suspended disbelief, however, has been made extremely difficult because of the myopic nature of the arguments being put forth.
Twisting Black History Facts
In a staged White House event in January, President Bush highlighted the example of an African American man whose father passed away at 57 before he could access Social Security retirement benefits. The President declared Social Security unfair and lamented that the structure of the Social Security system prevented this man from leaving any money for his adult children.
Indeed, African Americans, especially black men, do have shorter life spans when compared to whites. Yet this is not an immutable fact of life or a problem somehow generated by the Social Security system, as the President would lead us to believe.
In reality, the shorter life expectancy of African Americans is due to their poorer health status. According to a recent report by the National Center for Health Statistics, the overall mortality for African Americans was 31 percent higher than for whites in 2002. The report highlights that the age-adjusted death rates for African Americans exceeded those for whites by 41 percent for stroke, 30 percent for heart disease, 25 percent for cancer, and more than 750 percent for HIV/AIDS. Homicide was the leading cause of death among young black men, which contributed to their lower life expectancy. These health disparities are exacerbated by a lack of access to affordable, quality health care. Census Bureau figures show that twenty percent of African Americans were without health insurance in 2003 compared to only 11 percent of whites.
Ironically, President Bush could help close these health disparities by leading the effort to change how health care is provided in this country. Instead, his Administration’s attempts to gloss over the existence of minority health disparities, inattention to policies that expand affordable, quality health care to all Americans, and efforts to slash funding for Medicaid a health care program disproportionately serving African Americans have contributed to the negative health indicators driving the black/white gap in life expectancy and will, ultimately, contribute to the continued black/white gap in the number of Social Security retirement beneficiaries.
A similar shortsightedness has been apparent in the rationale given by privatization advocates for the black/white disparities in income and wealth. According to the U.S. Census Bureau, African Americans had a real median income of $29,600 in 2003 compared to $47,800 for whites. Similarly, a report issued by a Federal Reserve Board economist showed that whites had more than six times as much wealth as African Americans in 2001.
Despite strong evidence to the contrary, Social Security privatization advocates would have us believe that this situation is due to the regressive 6.2 percent Social Security payroll tax, which they claim reduces the ability of African Americans to build wealth and save for retirement.
Sadly, many African American families do suffer from a lack of personal assets that can supplement their income upon retirement. This lack of private wealth, however, is not due to the Social Security payroll tax but to the fact that many current African American retirees are only the second and third generations away from their slave ancestors (who were forbidden to own property or obtain an education that could have improved their economic circumstances) and only zero to one generations away from de-jure segregation which also systematically limited their economic and educational opportunities.
The income and wealth gap is complicated by the historic marginalization of African Americans in a labor market where they have been disproportionately unemployed, underemployed, and/or segmented into those jobs that do not offer pension benefits. The result is their overrepresentation among low and moderate income workers and their diminished capacity to accumulate or “pass on” assets such as equity-rich homes, stocks, land, businesses, or a cash inheritance.
In light of these circumstances, it is perhaps not surprising that African Americans have yet to accumulate substantial personal wealth that is inheritable across generations. Yet, the President and privatization advocates have been unwilling to acknowledge these black history facts in their efforts to pin the blame on Social Security.
How Does the Hype Square with Reality?
Now African Americans are being led to believe that they can overcome centuries of disadvantage by buying into the President’s proposal to create private individual accounts that can be invested on Wall Street. They are being promised the possibility of earning great wealth that can be passed on to their “heirs.” While this proposal sounds good on its face, an understanding of the tradeoffs and likely outcomes paints a sobering picture.
Currently Social Security helps offset the lower earnings and higher unemployment rates of African Americans through a progressive benefit formula that replaces a higher percentage of a low income person’s pre-retirement wages while factoring in only the highest 35 years of earnings (and dropping away those years of low or zero earnings).
In contrast, racial disparities in income and unemployment would remain and even grow under a system of individual accounts even if blacks and whites were earning the same rate of return. This is because, unlike Social Security, these accounts do nothing to offset periods when individuals make very small or zero contributions to their accounts due to lower earnings or unemployment. Describing this phenomenon, Congressman Charlie Rangel aptly states, “You can’t get out what you can’t put in.”
Combined with the high risk associated with individual account investments, the outlook for African Americans, especially those on a low or fixed income, is dire.
The inheritance argument is similarly misleading. Currently, Social Security provides benefits for the surviving dependents of a worker who passes away in the prime of his or her working years. Because blacks have lower life expectancies, African American widow(er)s and young surviving children have a higher reliance on these benefits when compared to whites. Indeed, Social Security Administration figures show that 48 percent of African Americans receiving survivor benefits are children.
However, under a system of individual accounts, an African American male dying at a young age is unlikely to have enough funds accumulated in his account to offset the deep cuts in Social Security benefits that are likely to accompany these accounts. As a result, young child survivors, who are the least able to fend for themselves, are likely to face the possibility of extreme poverty.
So if one does not have enough money accrued in his or her individual account, how does one leave an inheritance? Proponents typically cite the case of an older (say 57 years old) African American male who dies before he is able to receive retirement benefits. In this scenario, whatever funds this individual was able to accrue in his individual account would likely go to adult surviving children who are better able than younger surviving children to take care of themselves when a parent passes away.
Furthermore, individuals reaching the age of retirement who want to leave an inheritance would likely be required to use their account funds to purchase an annuity with a life insurance feature that could be paid out to survivors upon death. This type of policy would be very expensive and would expose the retiree to the risk of having very little money to live on in retirement and his heirs with little or next to nothing.
And how do individual accounts address the problem of African Americans’ shorter life expectancy? They don’t. For all of the hullabaloo being made about their higher death rates, private individual accounts include no structural features that make it easier for African American men to access retirement benefits.
The President is right to focus the nation on the need to promote ownership and wealth creation in the United States. Yet he is wrong to attempt to execute his plan by undermining Social Security. If the President really cares about the welfare of African Americans, he would seek to close health disparities and give people an opportunity to earn extra money to put on top of Social Security’s guarantee.
Dr. Maya Rockeymoore is a former staff member on the U.S. House Ways and Means Committee Social Security Subcommittee, co-editor of Strengthening Communities: Social Insurance in a Diverse America, and author of The Political Action Handbook: A How To Guide for the Hip Hop Generation. Article was first published in The Black Commentator (www.BlackCommentator. com.), Febuary 10, 2005.