Is Social Security Racist?

Yes—although it’s not as bad as it used to be.

Two elements of Social Security contribute to racial inequality. One is that the system rewards marriage. The other is that it rewards longevity. Blacks get shortchanged on both scores.

It’s one more illustration of how a seemingly neutral system can have injustice built into it.

The marriage benefit is a large one. While both members of a couple are alive, a spouse with a small or nonexistent paid work history can collect 50% of the other spouse’s benefit. Also, when one of them dies, the survivor gets the larger of his/her own benefit or the other spouse’s benefit.

So two people who are married get a larger return on the Social Security taxes they have paid than the same two people would have gotten from the same taxes if they had stayed single.

Blacks tend to miss out on the marriage bonus; 50% have never married, versus 34% for the population as a whole.

As for the longevity gap: It’s smaller than it used to be, but still significant. Blacks at age 65 have a life expectancy of 18.0 years, whites 19.4 years. Which is to say, whites who collect get benefits for more years.

Now consider the people who chip in but never collect. Blacks alive at 30 have a 21% probability of being dead by age 65; the corresponding figure for whites is 15%.

The good news in this part of the story is that health is improving and the longevity gap is narrowing. Between 1999 and 2013, reports the National Center for Health Statistics, life expectancy at birth for the whole U.S. increased from 77.3 to 79.1 years; during that time the racial gap at birth narrowed from 5.9 to 3.6 years.

One element of Social Security works in favor of the disadvantaged, although this turns out to be a mixed blessing. Blacks work disproportionately in dangerous jobs, such as in warehouses and on construction sites, and so they wind up getting a better return than whites on the disability insurance fund.

Also mitigating life’s inequities is that Social Security redistributes wealth. People pay in at a flat rate on the wage base ($142,800 this year) but draw out on a progressive scale. The payout formula credits a higher percentage of taxable earnings at the low end than at the high end.

Add it up, and what do we have? In a 2013 paper, Eugene Steurle and others at the Urban Institute did the arithmetic, concluding that whites get an outsized return on investment in Social Security taxes. “Historically, currently, and in the near future,” these analysts declared, “Social Security redistributes from people of color to whites.”

What is to be done? Black families have, outside the Social Security System, much less wealth than whites to cover a comfortable retirement. As a way to attack that problem, commentator Star Parker recommends an opt-out for Social Security. Let workers put their payroll taxes instead into stock funds, she says. They’d have more money for old age.

They would, if the stock market cooperates. But what happens when retirees convert their stock funds into monthly pensions? They might leap out of the frying pan and into the fire.

Boston College’s Center for Retirement Research published a study this year on the value of immediate annuities bought from insurance companies. Blacks, because their lifespans are shorter, get a crummier deal than whites.

It’s a complicated analysis, because life expectancies are a function of socioeconomic status as well as of race and gender. The racial gap is starkest for highly educated men: Blacks in this category get a return of only 82 cents on each dollar they invest, while whites get 90 cents.

The racial tilt in retirement has been around for a long while. Blacks were overrepresented among domestic and agricultural workers when those were excluded in the Social Security Act FDR signed 86 years ago. The omission was ostensibly justified by the difficulty of setting up withholding taxes in these sectors, but it’s hard to believe that Southern politicians’ animus against sharecroppers was not part of the picture.

In several reforms since 1935, the system has been broadened to include almost all employment. It’s getting fairer. It’s still not fair.

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Do-It-Yourself Income For Life