Plan for a New Future: The Impact of Social Security Reform on People of Color

Update (01/18/2013): The Commission has recently updated data for the report, specifically “Figure 9.” The updated data is not reflected in the original October 2011 document, but is attached below as an addendum.

As the United States to a “majority-minority” population over the next three decades, Social Security must be modernized to meet the needs of an increasingly diverse and economically insecure workforce. Although Social Security does not contribute to the federal deficit, Social Security benefit cuts are at the center of discussions in Congress to reduce the federal debt.

Plan for a New Future: The Impact of Social Security Reform on People of Color (NOTE: Updated data is available below) argues that changes to the program must consider the impact on workers and families of color who are more vulnerable to economic instability and far less likely to have generational wealth than white families. The report cites U.S. Census Bureau data showing that a majority of babies born in this country are now from minority racial groups. If this trend continues, the overall U.S. population is expected to become “majority-minority” by 2042.

Plan for a New Future reveals stark differences in how Social Security is used by whites and people of color. While the vast majority of whites (74%) depend on Social Security for the program’s’ retirement benefits, almost half (45%) of all African-American beneficiaries and a majority (58%) of “other” racial and ethnic groups rely on its survivor and disability benefits. According to the report, the greater reliance on survivor and disability benefits reflects socioeconomic factors, such as lower educational attainment and higher rates of poverty, disability, sickness, and – for African Americans and Native Americans – death. These usage patterns reflect the effects of occupational segregation, with people of color more often working in physically challenging jobs that are more likely to lead to temporary or permanent disability, as well as early death.

For instance, the report argues that for Latinos and Asians, who have longer life expectancies than whites or other minority groups, the annual cost of living adjustment (COLA) is an especially important feature because it maintains the purchasing power of Social Security benefits for those who are very long-lived. On the other hand, Social Security’s early retirement feature is vital to shorter-lived African Americans and Native Americans since it allows them to retire at 62.

The report lays out a plan for increasing revenue, in part by urging Congress to “Scrap the Cap” on Social Security payroll contributions (currently capped at $106,800 for high wage earners) and making the benefit formula less generous for high earners. This option alone would eliminate most of Social Security’s long-term revenue shortfall. Plan for a New Future also recommends improving benefits for future recipients by:

Updating the Special Minimum Benefit to 125% of poverty to strengthen benefits for those who have spent their adult lives in low-paying jobs and who are unlikely to have private pensions or other savings to fall back on.

Reinstating the student benefit to support students (until the age of 22) attending college or vocational school.

Increasing benefits for low-income widowed spouses.

Providing dependent care benefits to help those who serve as unpaid caregivers for children.

Other options identified by the Commission for reaching solvency include adding all new state and local workers to the program; slowly raising Social Security’s payroll tax by 1/40th of one percent over 20 years; and treating all salary reduction plans like 401(k)s so that workers would need to pay Social Security and Medicare taxes on contributions to flexible spending and retirement accounts.