Thursday, February 10, 2005

Can We Please Quit Swimming Upstream

Over the past few years I have written a number of articles regarding the amazing, contrary nature of Black American opinion to the rest of the nation. This includes attitudes on not only the usual issues such as affirmative action, welfare reform, the war in Iraq, and the President, but even the likes of the election of the “Governator,” Arnold Schwarzenegger. While most of America thinks a certain way on any issue by a margin of 50% to 90%, African Americans consistently feel 70% to 90% the other way on those same issues.

In the past I have spoken of the danger in taking such a diametrically opposed posture on everything. I believe that we render ourselves insignificant in such a consistent and easily definable position. We then marginalize our effectiveness as a force for positive change. But today I want to speak about the one issue that African Americans should not only be on board for, but which we should be leading the charge on. It is an issue that could well determine the prosperity or lack thereof, of future generations of African Americans. The issue is Social Security reform.

The left is trying, once again, to get a Pavlovan Dog-like reaction against President Bush’s plan for reform of the current system, with their so-called "populist" arguments against the reform effort. They use the typical word associations and scare tactics in an attempt to make us think that this is some evil plot to rob us and our children of another entitlement. Seniors will starve now, and your children will have nothing when they grow up, they cry. They do this while in reality almost the opposite is true and only inaction will be the true robber of future generations.

Star Parker wrote an excellent article on the subject of Social Security reform and the need for it in the Jan. 11th issue of What’s The Congressional Black Caucus Thinking In this piece Parker states the more typical and technical arguments for the privatization of Social Security. She discusses the difference in retirement income for a 22 year old under the current and a proposed privatized system. Parker even includes a link which allows one to calculate the difference in retirement income under the current plan and that of a private plan I encourage everyone to read Star’s article as it is very informative and right in all it says.

But, I do not want to deal with the typical and technical arguments on the subject, as you will hear plenty of these in the days and weeks ahead, rather, I wish to appeal to a more basic benefit of reform, in the way of privatization. I want to discuss the one central aspect of Social Security that is most dear to me and that I believe is most important to African Americans because it is so lacking in our culture. That is the issue of estate planning.

Wealth may be come by, by a couple of basic means. One of these is through a sudden windfall such as a lottery win, large legal settlement, or by signing a major sports or entertainment deal. The other is through a slow, disciplined and methodical accumulation and endowment to future generations. While we, as a race, have done fairly well in the windfall category, we lag way behind in the latter. Not because we do not work hard, or accumulate, I would say that in general we do as well as anyone in that area, but where we are light years behind is in the area of establishing a lasting familial wealth. Each subsequent generation must begin afresh, while others seem to be able to build upon a foundation established by prior generations. We are poorly adapted to planning our estates. Interestingly we understand and are strong believers in life insurance, but not in the other side of estate planning, which is the transfer of assets. I saw this in a very direct and tragic way, as a youngster, upon the death of an aunt and the way her estate was handled. After years of unecessary legal dealings her home and all that was in it was sold, and the proceeds were divided among the various surviving relatives (she was never married and had no children). The lawyers and accountants made large fees for their dealings and the family members split what was left, which was about 1/4 of the actual, initial value of her estate. This was not necessary, but no one knew better. I have since seen this repeated many times in other family's situations. It is simply a matter of ignorance of how an estate and money works. With regard to her Social Security, as a single woman with no surviving children there was no one left behind to received any benefit from her Social Security and the balance of her account was absorbed into the system.

I believe that Social Security is one of those areas where ignorance abounds. It is not a black or white thing, the ignorance transcends color, but African Americans are hurt more by it.

Social Security needs to be undesrtood for what it was initially designed to accomplish. It was designed to be 3 things in one. A retirement account or pension plan for workers who were not sophisticated enough to invest on their own, a disability insurance plan, and a limited life insurance plan. It was a great idea and a great benefit that has been a blessing to millions. But it also has its draw backs. As is often the case, a govenrment entitlement can be misunderstood and misused. Social Security was initially intended to be a temporary measure, and it was not intended to replace individual retirement accounts; but for many it did. Once it was enshrined in American life, the problems surfaced. The main problem lies in how Social Security was designed. It was not intended to last perpetually and it is not particularly well suited to African Americans and their needs. I do not think this is by design, it just turned out that way.

When it was initiated, Social Security was based upon 16 workers supporting one non-worker. Decreasing mortality, and an exploding population were not taken into account. These factors have altered the equation. Today a little over 3 workers support one non-worker (retired, disabled, or survivors benefit), and that ratio is decreasing. The fact that mortality rates are higher among African Americans than other races schews the equation; against us. Normally, payments to the account holder begin at age 65. Since African American workers, males in particular, have a much higher mortality rate than whites (a life expectancy of about 66 years of age), most will see little or no benefit from the system they have paid into their entire lives. If the Democrats have their way and decided to try and save the existing system by raising the normal retirement age to 70 or older, it will affect African Americans all the more. Each year that the retirement age is increased means an additional year that Black Americans will pay into the system, while decreasing their chance of collecting from it.

In addition to the retirement benefit, of social security, is the survivor’s benefit. This is the benefit paid to the surviving spouse and/or children (under the age of 18, or 22 if enrolled fulltime in college) of a deceased worker. If the primary bread winner has no surviving spouse or minor aged children, the income paid into the fund all of his, or her, life is forfeit. Here again we come up short. With the high number of single parent households and the early childbearing age of Black women, many children are already over 18 by the time the parents are merely 38 years old. This is compounded by the fact that the number of Black kids attending college is much lower than the rest of the population. Result; little or no benefit paid. One could almost say that, "Social Security is carried largely on the backs of Black Americans," who pay into the system while withdrawing little. Even if the spouse does live, her Social Security ends if she remarries. And if she does not remarry, the benefit is still offset by her own social security income. Let’s say her late husband’s benefit to her is $1200 a month. If she begins collecting her own check, which she should be entitled to, she can only collect the higher of the two.

Now let us just imagine, for one moment, if every dime paid into social security, plus the growth on those funds, were able to be passed onto one’s survivors or any other designated beneficiary regardless of age. It could revolutionize our community. Each generation would not need to start afresh. My children and yours could use that money as a basis to build upon for their children.

Please do not get me wrong, I am not saying this is a panacea for the ills of American or even African American society, but it is a start.

Somehow, though, the liberal establishment with the help of their “New Uncle Toms,” has managed to convince many African Americans that a private retirement account is not in their best interest. This is done by misdirecting the focus of the discussion. Unfortunately, until now the President and the GOP have also done a poor job of effectively communicating the shortcomings of the current system and the benefits of a proposed new system. Those committed to preserving the current system center the focus of attention on the word privatization and seek to convince people that they will be left to themselves to decide what to do with the funds. And that corrupt Ken Lay (Enron) types would handle, or should I say mishandle, the funds, leaving them and future retirees penniless and poor.

Those supporting the President’s plan and working to reform the system, meanwhile, are focused or hung up on trying to sell the rates of higher return on invested funds under a new program. They try and illustrate how much more one can have under a new system. They are having a hard time getting through to people, though, due to the insecurity people feel about a change. They have forgotten the words of Will Rogers who said, “I am more concerned about the return of my money than I am about the return on my money.” I think most people agree with Will and need some assurance of the security of their future retirement incomes. Somehow the administration needs to convince the public that “private” does not mean one is left alone to take their money and put it wherever they want, or if they want. It needs to be made it clear that FICA payments will still be mandatory, and that the investment vehicle(s) will be limited and tightly regulated. Also, that no one will be able to get their retirement income any earlier, or later than they can now.

Liberals will try and say that this is a scheme to defraud the poor and enrich the already rich. But they (Liberals) count on our ignorance of some basic facts. One fact is that the rich benefit from and like the current system, and they might be the first to fight a change. Here, is why. Did you know that the income that makes up Social Security also known as the FICA tax, is only charged on the first $89,900 of earnings? Let’s call it $90,000. This means that anyone making over $90,000 pays no FICA on the amount above that $90,000. I realize that I am being redundant, but please bear with me as I am trying to make a point. So, Bill Gates, Warren Buffet, LeBron James, Michael Vick and even Ted Kennedy and John Kerry, and his wife, do not pay FICA on millions of dollars they earn each year. While you & I pay up to 15.5% of our income in FICA tax, they pay possibly as little as 1% or less. Let’s look at this- LeBron and Michael signed $10 to$15 million a year deals, I believe. $10 million less $90,000 means they do not pay FICA on $9,910,000. They pay less than .9% in FICA tax. I realize this is picky & possibly tedious but I want to repeat and drive home the point that the rich are already the ones getting over under the current system, and in a big way.

Liberals also want to scare us with the idea of “private accounts or privatization.” We are led to believe, as I mentioned earlier, that private means do what you want with the money. Giving the impression that a person can go to the casino if they want and squander it, thus becoming destitute and leaving you and me to take care of them form our taxes. That is not only untrue but ridiculous.

Another untold truth is also that the current system is not now, and will not be able to return dollar for dollar to those making payments in the future. Statistics show that African American males living to age 66 actually receive only about 88 cents for every dollar they pay into the system as it is. In 13 years that figure drops even more drastically for African Americans and for the general public it will pay only about 70 cents on the dollar.

My only beef with the President in this matter is that I do not think he goes far enough. Mr. Bush is proposing we only take a small portion of the FICA tax and set it aside in “private” accounts. I would like to set it all aside. I would also like to raise the FICA threshold to at least $10,000,000 of income. That way we would capture more revenue to help shore up the the current and near term recipients. Since the funds are set aside in personal accounts those making up to and over the $10,000,000 a year would not really lose the money rather they would be setting it aside for their retirement and/or their kids like everyone else. It is a win, win proposition.

Here is the my advise to the White House in the "for what it’s worth" department.

1) Make clear what “private” accounts means, and how they work.
2) Drive home the transferability to any designated beneficiary aspect of the accounts vs. the money being confiscated by the Federal government in the event of death with no surviving, unmarried spouse, or minor children.

That is it, very simple and to the point. I firmly believe that African Americans should be the prime proponents of this change. We should make this, along with education, the civil rights issue of this generation. We understand life insurance and the idea of leaving something behind, why should we not understand the idea of passing our hard earned retirement income on to our posterity. Under the reform plan we can accomplish this.

I am of the conviction that this reform will happen with or without us, I would just like to see us at the forefront this time, not dragged kicking and screaming to the party. Let’s quite swimming up stream and get into the soon to be rushing current.


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