Federal Reserve chairman Alan Greenspan recently raised eyebrows when, in Capitol Hill testimony about the federal budget, he suggested that we need to cut Social Security benefits. The chairman's testimony was a reminder that in the process of trying to fix government, we inevitably turn to the same individuals who helped create our problems.
Perhaps it is presumptuous for a black ex-welfare mom to lecture the chairman of the Federal Reserve about public policy. However, African Americans suffer daily and disproportionately under a broken and unfair Social Security regime. For blacks this is not an abstract and academic exercise in public policy as it apparently is for Mr. Greenspan. We need real solutions and it is time to start getting clear about the facts.
Let's recall that Mr. Greenspan chaired a commission in 1983 whose mission was to fix Social Security. The reforms produced then supposedly put the system on sound fiscal footing that would take it well into the current century. However, within a decade it was clear that Social Security was still in as bad a shape as ever.
As result of the work I have done through my organization, CURE, it is clear to me that our priorities must be refocused on saving people and not a bankrupt and broken Social Security so-called system.
Social Security is not a system at all, but simply a tax program and a government spending program. Use of the word "system" is a great marketing ploy for politicians to justify a payroll tax as the source of funds for the Social Security checks sent out during the course of the year to retirees. It is a testament to the public relations skills of our political class that Americans believe that their Social Security taxes are actually some kind of investment in a fund that will pay them benefits at retirement.
This cute tax scheme worked for years because we had many people working for every retiree. At one point there were more than 40 working Americans for every person retired. However, today this is down to three to one and we are well on our way to it dropping to two to one.
Simple math shows that the only options to maintain the current Social Security arrangement is to raise payroll taxes paid in, cut the amount of money paid out, and/or raise the retirement age so that workers pay the tax over more years and retirees are on this planet for fewer years to collect. The Greenspan commission of 1983 opted for raising taxes and the retirement age. That didn't work, so now Mr. Greenspan wants to increase the retirement age even more and reduce payments to retirees.
Median black household income in 2001 was less than $30,000. The current Social Security tax, five times what it was when the program started sixty years ago, extracts the funds that these families could have saved if Alan Greenspan's retirement spending program was not financed on their backs. If these families could put their payroll tax in a fund that just invested in government bonds, they would get twice what Social Security promises them at retirement.
Meanwhile, black household wealth stagnates at less than 20% of the national average, and the "wealth gap" persists. According to the Federal Reserve, from 1998 to 2001 alone, there was a 70% increase in the wealth gap between the nation's 10% top wealthiest households and the poorest 20%.
President Bush should be commended for suggesting that we start thinking about real changes in Social Security. The only way out is the right and moral way out. Allow American workers to take the payroll taxes they are now forced to pay and invest them in a personal retirement account. Open the door to ownership, savings, and wealth creation to the many hard working Americans who today can no longer dream the American dream.
As Americans are given the option of redirecting their payroll taxes, the question will arise how to meet the obligations of the government spending commitments to existing retirees. Viable proposals have been released in recent days by Peter Ferrara of the Institute for Policy Innovation and by the Cato Institute, that would allow Americans to invest half their payroll tax, using the other half, the half paid by employers, together with federal spending cuts and funds from our capital markets to meet the outstanding interim obligations.
We can and must meet the current commitments of Social Security. However we must end the current scandal of politicians shirking their responsibilities by placing this burden on America's working poor and middle class. The challenge is not economic but moral. We have no choice but to meet this challenge.