As I argued in a recent report I wrote for the Center for American Progress, modernization can protect promised benefits for the majority of beneficiaries, improve benefits for those who rely on Social Security the most and make sure we can pay for those benefits for generations to come. Communities of color would be particular beneficiaries of such a modernization.
Communities of color, particularly African Americans and Hispanics, still experience higher poverty rates than white families in retirement. The poverty level for African-Americans ages 65 or older was 20 percent in 2008 and 19.3 percent for Latinos – double the 8.5 percent for whites.
A Minimum Benefit
I propose a minimum benefit that would provide enough support to protect people who have worked all of their lives at very low wages. The benefit would prevent them from spending their well-deserved retirement in poverty.
Communities of color also tend to see lower family incomes than white families during their working years and have a more difficult time than whites taking time off from work when a family member falls ill.
Another provision of my proposal could greatly help families with tight incomes by allowing workers to receive some income from Social Security while they take time off to care for a sick child or family member, a newborn, or to deal with an adoption.
Under my proposal the vast majority of communities of color could expect to receive improved benefits to address their economic needs in a changing labor market.
In families of color both spouses often work to make ends meet. Social Security currently disadvantages the surviving spouse in such couples.
This is less of a problem where a surviving widow or widower was in a marriage in which one spouse had significant earnings. But lower-income survivors often end up with little. Present law allows remaining spouses either to take their own retirement benefits or half of their deceased husband or wife’s benefit, whichever is higher. For low-income elders, that doesn’t amount to much.
Under the plan I favor, surviving spouses would received at least 75 percent of the couple’s combined amount – enough to make ends meet for many more seniors.
Don’t Raise Retirement Age
Differences in life expectancies are one of today’s intractable inequities between those of color and whites. Communities of color can often expect much shorter periods in retirement than whites. Once they reach age 65, for instance, African-American men could expect to live another 15.1 years, according to 2006 data, the last year available. White men, in comparison, could expect to live another 17.1 years.
Therefore, raising the retirement age by a year or more, as recommended recently by the President’s commission on reducing the national debt, would eliminate a proportionally larger share of time in retirement from communities of color. Because of this disparity, I oppose raising Social Security’s full retirement age.
These improvements to Social Security are crucial to raising the income security of economically vulnerable families. But better benefits cost money. Because Social Security already faces an expected shortfall in the coming decades, any responsible proposal for better benefits needs to include ways to pay for them.
The largest changes I propose are two increases in Social Security’s tax base. Earnings are currently only taxed up to a limit, which was $106,800 in 2010. The payroll tax rate for Social Security is 12.4 percent (6.2 percent each for employers and 6.2 percent employees) up to this limit. Some earnings are exempted from taxation, such as contributions to so-called cafeteria benefit plans, which include parking benefits and childcare benefits, among others. In comparison, contributions to 401(k) retirement savings plans are subject to the tax.
I propose to eliminate the cap for the employer share of the payroll tax and to make cafeteria benefit plans subject to the employer share of the tax.
Additionally, Social Security should be allowed to invest part of its surplus fund in a specially managed stock market account. This approach would gradually phase in progressive changes for the top-third of beneficiaries. Social Security should also use a better inflation measure to calculate benefits.
All of these changes will make Social Security financially sound.
Christian E. Weller, is an associate professor of public policy and public affairs at the University of Massachusetts Boston, and a senior fellow at the Center for American Progress.
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