Should Social Security be privatized?

BE economist members look at both sides of the issue

The Social Security Board of Trustees 1998 report estimates that income from FICA payroll taxes will become insufficient to meet all the payment obligations of the Social Security funds in the year 2013. According to one recent report by the Joint Center for Economic and Political Studies, this is of particular concern to African Americans because Social Security payments account for nearly 47% of the income of elderly African Americans (65 and older) and have helped alleviate poverty among them. Without these government cash transfers, 68% of elderly African Americans today would have incomes below the poverty threshold.

Two black enterprise Board of Economists members, Cecilia Conrad and Thomas Boston, take a look at opposing sides of this issue that, one way or the other, threatens to affect the income of every elderly African American.

Privitization could help minorities
Cecilia Conrad, Ph.D.
There are several reasons for African Americans to consider privatization of the Social Security system. First, because they have a lower life expectancy than other demographic groups, the expected rate of return from Social Security is lower for African Americans than for other groups. Second, a private system could allow the transfer of benefits from one generation to the next. Third, the pool of capital generated by funds invested in private Social Security accounts might be mobilized to aid the economic development of African American communities.

According to a recent study by the Heritage Foundation, investments in Social Security yield a negative rate of return for some African Americans. The Foundation estimates that an African American male born after 1960 will get back less than 88 cents for every dollar he and his employer pay into the Social Security system if he works 44 years between the ages of 21-65. His net payout from Social Security over that span would be $13,377. In contrast, if the funds he paid into the Social Security system had been invested in a private account over a 44-year span, his net return over his lifetime could range from $79,846 to $145,764.

In addition, under a private system, these earnings could be transferred to the next generation. With the current system, if an African American male dies before becoming eligible for Social Security, his wife can receive his benefits or hers, but not both. When his wife dies and there are no children under 18, the checks stop coming.

Privatization of Social Security could create opportunities for African American-owned money management companies. Some specialized funds might be created to support local economic development. A privatized Social Security system, if properly designed, could generate greater wealth for the African American community.

Privatization isn’t worth the gamble
Thomas D. Boston, Ph.D.
While the general public is correct to be concerned about the future of the Social Security Trust Fund, the stakes are even higher for blacks.

In the long run, Congress has several proposals to address the problem. The one proposal that has received the most attention is privatizing all or part of the program.

Three frequently discussed options are creating an investment board that will

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