White House: Women, Minorities Will Benefit From Privatization

July 25, 2001

Women and minorities will be among those who benefit most from proposals to allow workers to privately invest a portion of their Social Security taxes, according to Lawrence Lindsey, chairman of the National Economic Council, and President Bush's top economic advisor. In an interview with the Wall Street Journal, Lindsey said that Social Security has become a "frayed safety net" that discriminates against families that don't fit a "1935 stereotype."

Lindsey and other advocates of Social Security reform point out that African-Americans have shorter life expectancies than whites, tend to start work earlier, and are less likely to have other forms of retirement savings. (See, for example, "Disparate Impact: African-Americans and Social Security," by Michael Tanner, Cato Institute Briefing Paper no. 61, February 5, 2001). This "creates an imbalance in their ability to have their heirs and their families benefit from their contributions," according to Robert Johnson, founder of Black Entertainment Television (BET) and a member of the President's Commission to Strengthen Social Security.

The current system also heavily penalizes workingwomen, as well as divorced or never married women. For example, the "dual entitlement rule" means that many working women, who pay Social Security taxes, receive no more benefits than if they didn't work and relied solely on their husband's spousal benefits. Their own payroll taxes earn them nothing. Women who divorce after less than 10 years of marriage receive no spousal benefit at all, leaving them at serious risk. (See, "The Benefits of Social Security Privatization for Women," by Ekaterina Shirley and Peter Spiegler, Cato Institute Social Security paper no. 12, July 20, 1998, and "Greater Financial Security for Women with Personal Accounts," by Darcy Olsen, Cato Institute Briefing Paper no. 38, July 20, 1998.)

Meanwhile, the Urban Institute has released a new study that shows the current Social Security System provides mixed results for women and minorities. According to the study, "Social Security Redistribution by Education, Race, and Income: How Much and Why," by Lee Cohen, Gene Steuerle, and Adam Carasso, both African-Americans and whites can expect to earn dismal returns from Social Security, but returns to African-Americans will be slightly higher because of their lower average wages. (Social Security's benefit formula is skewed to benefit low-wage workers.) According to the report, the average white man born between 1956 and 1964 can expect a return of 1.96 percent on his Social Security taxes, while a black man will receive a return of 1.99 percent. However, the study notes that African-Americans "do lose more as a result of mortality differences." The report also shows women receiving higher returns than men, nearly 3 percent, but still far below market returns.

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