Is Social Security Racist?

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Yes, although it’s not as bad as it used to be.

Inclination?

Bettmann Archives

Two elements of social security contribute to racial inequality. The first is that the system rewards marriage. The other is that it rewards longevity. Black is wronged on both scores.

It is yet another illustration of how a seemingly neutral system can accommodate injustice.

The benefit of marriage is important. As long as both members of a couple are alive, a spouse with a history of poor or no paid work can receive 50% of the benefit of the other spouses. In addition, when one of them dies, the survivor receives the greater of his or her own benefit or that of the other spouse.

Thus, two married people get a greater return on the social security taxes they paid than the same two people would have obtained from the same taxes if they had remained single.

Blacks tend to miss out on the marriage bonus; 50% have never married, compared to 34% for the general population.

As for the longevity gap: it is smaller than before, but still significant. Blacks at 65 have a life expectancy of 18.0 years, whites 19.4 years. That is, whites who receive benefits receive benefits for more years.

Now consider the people who contribute but never collect. Blacks alive at age 30 have a 21% chance of being dead at age 65; the corresponding figure for whites is 15%.

The good news in this part of the story is that health is improving and the longevity gap is narrowing. Between 1999 and 2013, reports the National Center for Health Statistics, life expectancy at birth for the entire United States increased from 77.3 to 79.1 years; during this period, the racial gap at birth fell from 5.9 to 3.6 years.

One element of social security works for the disadvantaged, although that turns out to be a mixed blessing. Blacks work disproportionately in dangerous jobs, such as warehouses and on construction sites, and so end up outperforming whites on the disability insurance fund.

Also reducing inequalities in life, social security redistributes wealth. People pay at a flat rate based on salary ($ 142,800 this year) but withdraw on a progressive scale. The payout formula credits a higher percentage of taxable earnings at the lower end of the scale than at the high end.

Add it up, and what do we have? In a 2013 article, Eugene Steurle and others at the Urban Institute did the arithmetic, concluding that whites get an inordinate return on their investment in social security taxes. Historically, now and in the near future, these analysts said, Social Security redistributes people of color to whites.

What is there to do? Black families have much less wealth outside the social security system than whites to cover a comfortable retirement. To tackle this problem, commentator Star Parker recommends an option to opt out of Social Security. Let workers put their payroll taxes into equity funds instead, she said. They would have more money for old age.

They would, if the stock market cooperates. But what happens when retirees convert their equity funds into monthly pensions? They could jump out of the pan and into the fire.

The Boston Colleges Center for Retirement Research released a study this year on the value of payout annuities purchased from insurance companies. Blacks, because their lifespan is shorter, get a poorer deal than whites.

This is a complicated analysis, as life expectancy is a function of socioeconomic status as well as race and gender. The racial gap is greatest for highly educated men: Blacks in this category get a return of only 82 cents on every dollar they invest, while whites get 90 cents.

The racial inclination to retirement has been around for a long time. Blacks were overrepresented among domestic and agricultural workers when they were excluded from the FDR social security law signed 86 years ago. The omission was ostensibly justified by the difficulty of implementing withholding taxes in these sectors, but it is hard to believe that the animosity of southern politicians against sharecroppers was not part of the picture.

In several reforms since 1935, the system has been expanded to include almost all jobs. It is more and more fair. It is still not fair.

Related stories:

What is the value of your social security benefit?

Do-it-yourself lifetime income

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