The Red Herring of Social Security's "Non-Retirement" Benefits

[Walter Hart <tracy.hart@cwix.com>]

Dear Ms. Kijakazi:

In your position paper you write:

"The argument has been made that Social Security provides a lower rate of return to African Americans because this community has a lower average life expectancy than the general population. According to this argument, an African American worker would contribute payroll taxes, but would not live long enough to receive Social Security benefits sufficient to achieve the same rate of return as non-African American beneficiaries. This reasoning is faulty, however, as it overlooks important protections Social Security provides for African-American and low-wage workers, including disability and survivors insurance."


In my opinion, this is a red herring that overstates the case for Social Security as it currently exists. The amount of payroll taxes directed towards benefits payable to younger families is very minimal and most privatizers don't suggest that these types of non-retirement benefits be discontinued. Survivors' benefits can be secured by recognizing contributions to privatized personal accounts as being community property.  Moreover, most privatizers are focusing on privatizing Old Age & Survivors' Insurance (OASI) NOT Disability Insurance (DI). The real money in OASI goes to the elderly not to younger families. 

Because this argument about the "non-retirement" benefits of Social Security is heard so often, I went through the categories of benefits paid and broke them out as a percentage of payroll taxes.  What I found was that the percentage of payroll that went to non-retirement benefits is very low.  

Of  the 10.7% OASI taxes [in 1997], only .411% of payroll went to some kind of insurance that might apply to my family, while 10.289% went to other types of insurance and surplus. 
For a younger worker making $50,000 a year in 1997, this means that of his or her total OASI taxes of $5,350.00, only $205.50 went to pay for a category of benefit that might have provided a direct benefit to his or her family." 

So, when we're talking about Social Security reform, what we're usually talking about is the 10.7% of payroll. (For 1998, it may be a different percentage, but I'm using the latest numbers available to me now in the analysis below, and those are from 1997.) 

Using the 1998 Annual Report of the Board of Trustees of the Federal Old-Age and Survivors Insurance and Disability Insurance Trust Funds, see in particular, Table I.C.1. and Table II.C7., let's see how that 10.7% of payroll was spent, and what part of it actually went to directly benefit younger workers or their families

What I've done below is present the dollar amounts of payments in 1997 that the SSA estimated for different categories of benefit recipients (from SSA Table II.C7). To the right of these numbers, I've roughly computed what each of these beneficiary payment categories means in terms of a percentage of payroll. 
 
BENEFICIARY				EST. AMOUNTS PAID 	% OF PAYROLL 
RETIREMENT BENEFITS 
Retired Workers 					$220.8 Billion			6.902% 
Wives and Husbands of Retired Workers		$18.0 Billion			. 562% 
Minor & Disabled Children of Retired Workers	$1.9 Billion			. 059% 
SURVIVORS' BENEFITS 
60+ Year Old Widow or Widower			$57.8 Billion			1.807% 
50-59 Year-Old Disabled Widow or Widower	$1.1 Billion			. 034% 
Dependent, 62+-Year-Old, Parents of Deceased Workers	$.03 Billion		---% 
Minor or Disabled Children of Deceased Workers	$11.5 Billion			. 359% 
Widowed Mother or Father Caring for Child Beneficiary Under 16 years old
$1.5 Billion			. 046% 
Death Benefit						 $ .2 Billion			. 006% 

So, what percentage of payroll actually might be described as a paying for a benefit that might directly go to a younger worker or his or her immediate family? 

Each person has a different life situation. But, for me, as a 38-year-old husband and father in 1997, there were only three (3) categories of benefits that conceivably could have applied to provide a benefit to my family or me. In decreasing order of magnitude, these are the benefits paid 1) to a Minor or Disabled Child of a Deceased Worker; (2) to a Widowed Mother or Father Caring for a Child Beneficiary; and 3) as a Death Benefit.
 
As can be seen, however, the estimated payments for these categories of benefits in 1997 totaled less than .5% of payroll. In other words, of my 10.7% OASI taxes, only .411% of payroll went to some kind of insurance that might apply to my family, while 10.289% went to other types of insurance and surplus. 

For a younger worker making $50,000 a year in 1997, this means that of his or her total OASI taxes of $5,350.00, only $205.50 went to pay for a category of benefit that might have provided a direct benefit to his or her family. 

Walter