Congressional Black Caucus members are already uniformly lining up in opposition to including individual retirement accounts as a key element of Social Security reform – despite the fact that a specific proposal from the Bush administration has yet to arrive on Capitol Hill.
The outgoing chair of the caucus, Rep. Elijah Cummings, D-Md., is on record that “Our constituents … can’t afford having their money going into private savings accounts.” Caucus member Rep. Stephanie Tubbs Jones, D-Ohio, who sits on the House Ways and Means Committee, the key panel with jurisdiction over Social Security legislation, is also opposed. Tubbs Jones believes that introduction of individually owned retirement accounts would “be detrimental to the nest egg that many Americans, particularly minorities, depend on in their retirement.”
The Black Caucus, with 43 members, is now the largest it has ever been. Included is new Illinois Sen. Barack Obama, who has gotten much attention as a supposedly new-generation black leader. Yet, not one of these black legislators has indicated it might be worth giving serious thought to the possible benefits of individual retirement accounts to blacks.
This is particularly curious given that the newest winner of the Nobel Prize for economics, Edward Prescott of Arizona State University, has written recently that individual accounts are a good idea and should be included in reform of Social Security.
What’s going on here? The winner of the Nobel Prize for economics says it’s a good idea and the Black Caucus dismisses it before it has even been formally proposed. Is this about good economics or is this about power politics? Where is our exciting new Sen. Obama? There is certainly nothing partisan about the Nobel Prize. Yet, the recommendations of Prescott, honored by the Nobel committee as most distinguished in his field, are irrelevant to black Democrats.
I invite readers to log onto the Cato Institute’s website on Social Security reform, and engage the interactive Social Security calculator. I’ve just checked out, for instance, what Social Security with individual accounts would mean to a 22-year-old male currently earning $25,000 a year.
The calculator reports back that, under the existing system, this individual would get at retirement an annual benefit of $16,199. It also reports that, under the Cato Institute’s plan, which would allow half the Social Security tax to be diverted to an individual account, an annuity could be purchased at retirement that would provide $44,036 annual retirement income. This is almost triple the Social Security benefit.
What, then, does Cummings have in mind when he says blacks “can’t afford having their money going into private savings accounts”? Isn’t it exactly the opposite? It seems that blacks cannot afford to not do this.
A few years ago, the Consumer Federation of America and BET initiated a joint project to address the problem of wealth accumulation in the black community. That project, in 2002, reported that mean black household wealth was $15,500 compared to the mean nationwide household wealth of $76, 700.
The wealth gap is real, and blacks continue to lag well behind.
Consider that, at a mean annual household income of less than $30,000, the typical black household does not have much spare cash to save. Also consider that most black wage earners pay more in Social Security taxes than in income taxes. The 12.4 percent of every worker’s paycheck that gets diverted to Social Security is really the only possible chunk of cash that might otherwise be used for saving and accumulating wealth.
I can think of little that would provide a greater boon for the creation of wealth in black America than a provision that would allow black workers to divert their Social Security tax into an individually owned retirement account.
Now, of course, Cummings is going to tell us that putting funds into a private retirement account is risky. But, the fact is that investing over 40 years in a highly diversified fund of stocks and bonds is not a risky endeavor.
If Cummings questions this, we should have the discussion and put the facts in front of black America. To preclude having this discussion, when there is substantial opportunity to enhance the wealth of every black citizen, is simply irresponsible.
Black politicians are, unfortunately, playing on the fears of constituents. I also talk to black citizens and I know many are afraid. They have so little experience with ownership and investing that the prospect of getting off the government plantation scares them.
Simple investing is not rocket science. The fact that so many black Americans do not know the basics is all the more reason to consider this important reform.
You would think that black politicians would view the prospect of wealthier and better-informed black citizens as positive. Why don’t they?