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African-Americans Would Benefit Substantially From Social Security Reform.

Back in January, we argued that Social Security reform would benefit minorities disproportionately more than other groups.

Now, Secretary of the Department of Housing and Urban Development (HUD) Alphonso Jackson explains the importance of Social Security reform for African-Americans in the Wall Street Journal's OpinionJournal.com.

Jackson:

Today, the typical black household has a net worth of only $6,100, while a typical white household has $67,000. In recent years, the wealth gap between blacks and whites has been intensifying. Blacks are more likely to be unemployed, living in poverty, and in need of government assistance.

We see left-wing group cite these same kinds of numbers as evidence against reform. Liberals tend to view reform as taking away the only remaining safety net for the poor, but that couldn't be further from the truth. The point of reform is to make people less dependent on government, allowing someone living paycheck-to-paycheck to build a nestegg and have the dignity of a personal retirement account.

We can begin reversing these trends and erasing today's racial inequities by encouraging black participation in what President Bush calls America's "ownership society." Through ownership, more Americans will accumulate wealth, become financially independent, and take a more active role in their futures, their children's futures, and the future of our country.

An ownership society, as opposed to a welfare state, is the way to lift people out of poverty and rejuvenate run-down communities, all while creating a real safety net.

An individual who owns his retirement security--a concept central to the president's plan for reforming Social Security--would enjoy many of the same benefits homeownership provides. And under the plan, even the lowest-income workers would have the opportunity to build equity.

The administration has had great success in boosting home ownership among minorities over the past few years. Putting Social Security reform in those same terms is important for gaining the trust and support of African-Americans on the issue.

Black Americans have the most to gain from the proposals. As it stands today, black seniors are disproportionately more dependent on Social Security, but they receive less benefit from the system. While approximately 20% of white Americans depend entirely on Social Security for their retirement income, the figure doubles for blacks.

Not only that, but without reform, benefits will fall by more than a quarter beginning in 2041; it only gets worse over time. Those who exclusively count on Social Security to take care of them in retirement (and there are more people like that than you might think) need reform most of all.

But blacks receive far less in return for their Social Security contributions. One in three will get no benefit at all because he will die before he is eligible to collect benefits. After a lifetime of paying into Social Security, nearly 30% of black seniors are left in poverty, compared to 7% of white seniors. And while the average black male lives to age 67.8--after collecting less than one year of Social Security--the average white male will collect seven years of benefits. In effect, black workers are subsidizing the retirement of whites. The inevitable results of not reforming Social Security--raising payroll taxes or reducing benefits--would only worsen the situation for blacks.

This point is not insignificant, although the NAACP typically claimed that noting the lower life expectancy of African-Americans is "playing the race card."

Today, about half of the nation has money invested in stocks. The other half doesn't earn enough to afford the freedom to invest. Despite their inability to save for their future, these low- and middle-income workers are forced to pay 12.4% of their income into Social Security--a system that generates no wealth. An individual can work for 20, 30 or 40 years, but if he dies without children under 18 or a spouse over 65, none of that Social Security money is passed on.

Social Security, as it is funded today, rests on a complicated inter-generational wealth transfer. The money younger workers pay in today (an eighth of every dollar) goes toward funding the general operations of government. If we reform the system appropriately, individuals would see a real connection between personal contributions and the building of wealth.

Allowing every American to accumulate inheritable wealth will go a long way in solving the intergenerational wealth gap. Younger workers allowed to set aside part of their money into personal retirement accounts will be able to build nest eggs for their own futures that they can pass along to their children and grandchildren. Best of all, that money will grow at a greater rate than anything the current system can deliver.

Since the creation of Social Security 70 years ago, our nation has made great strides in closing the gaps of racial equality--the Urban League report makes this clear. But to remove the final obstacles to equality, black Americans need to start building the equity--through ownership that their white counterparts have been accumulating for generations. The homeownership gap is closing. If we allow black Americans to build wealth through personal retirement accounts, another gap will close.

Blacks, out of every group in the country, have the most to lose without reform, and the most to gain with reform. When African-Americans become less dependent on the government, you can bet that they may start reevaluating their pact with the Democratic Party. Once blacks see that the benefits of reform far outweight the current system, that Republicans are not out to get them, and that Democrats don't always have their best interests at heart, African-Americans may break from their near-unanimous support for Democrats.

Don't expect it to happen overnight, and certainly don't expect a complete mirror-image flip. But moving from 90-10 ratio to even 65-35 would profoundly affect party politics in America for quite some time.

UPDATE-
Matt Margolis comments:

While the Democrats are the minority party, they also claim to the the party of minorities. Of course the big problem with that claim is I really can't think of anything they've done to help minorities. It seems as if their position on Social Security is no different.

Posted by Will Franklin · 19 April 2005 10:59 AM

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