At its inception, the Social Security program did not cover most African American workers. Over time, through policy changes, the program has evolved into a critical source of income for African American families and has reduced the economic disparities between African American and white families. Several proposals have been offered over the past two decades to modify the program. Some proposals aim to improve benefit adequacy, because current benefits are modest and low-wage workers can still face poverty even after receiving Social Security. Other proposals are designed to improve the program’s long-term financing by reducing benefits or increasing taxes that fund Social Security. This brief looks at the program’s history with respect to African Americans. It examines structural barriers in the labor market today that make economic security more challenging for African Americans and the role Social Security plays in their lives. Finally, the brief explores some proposed changes to Social Security and the effects these changes would have on the well-being of African Americans.
Factors Contributing to Racial Economic Disparities
When workers of color and white workers have similar circumstances, they make similar choices regarding participation in a retirement plan and contribution levels. But discriminatory barriers in the labor market result in African Americans having less access to retirement plan coverage than white workers and fewer earnings from which to contribute to a plan.
- Compared with white workers, African American workers face higher rates of unemployment at every education level and are more likely to be employed part-time when they want full-time jobs.
- African American workers receive lower wages at every education level and in every occupation.
- Occupational segregation results in African Americans being disproportionately employed in jobs that do not offer retirement savings plans.
- African American women face both racial and gender discrimination in the labor market. Despite having higher labor force participation rates than white women, African American women face substantially greater unemployment levels and part-time employment when they want full-time jobs.
- Compared with white men and women, African American women have higher unemployment rates and lower wages at every education level and occupation.
Proposals to Improve Benefits
- Establish an effective minimum benefit. The Bipartisan Policy Center’s (BPC) Commission on Retirement Security and Personal Savings developed a proposal called the basic minimum benefit that would give beneficiaries who earn low Social Security benefits a supplement on a sliding scale, starting when they reach full retirement age. This proposed policy is projected to close the Social Security income gap between African American seniors and white seniors in the bottom quintile by 2065.
- Reestablish benefits to children of deceased or disabled workers who are pursuing secondary education. By extending benefits to students through age 22, education costs would be less of a barrier, particularly for African American students.
- Establish caregiver credits. Several proposals suggest that parents either out of the labor market or working part-time because of caregiving should receive credits for up to five years. Projections by the Social Security Administration show that in 2050 33 percent of African American workers and 20 percent of white workers would receive higher benefits. Among workers affected by the proposal, African Americans would receive a median benefit increase of 5 percent compared with a 4-percent increase for white beneficiaries.
The report also assesses methods to strengthen the program’s financing base.
Proposals to Strengthen Financing
- Restore the taxable maximum to 90 percent. Gradually increase the maximum amount of wages subject to the Social Security payroll until the share reaches 90 percent of national wages. The 90-percent taxable maximum would substantially reduce the share of high-wage earners with wages that exceed the payroll tax maximum, improving equity.
- Cap the spouse benefit. Limit spousal benefits to half of the benefit for a worker earning wages at the 75th percentile of the wage distribution. This proposal would only affect new beneficiaries. This change would primarily affect spouses of high-wage earners, also advancing equity.
Other proposals to reduce costs would be detrimental to African American families and other families facing economic insecurity.
Proposed Changes That Would Be Detrimental
- Increase the full retirement age. The BPC Commission proposed an increase to the full retirement age (FRA) from 67 to 69. This proposed change is projected to reduce Social Security benefits in 2065 for both African American and white beneficiaries by about 6 percent if they retire at the proposed FRA. This change is premised on longer life expectancy, but African American workers have shorter life expectancy than white workers on average. Moreover, African American workers face greater health challenges and may be unable to remain in the labor force until the FRA. Currently, if a worker retires early (age 62 according to the FRA), his or her benefit is permanently reduced to compensate for each additional month benefits are received before age 67. If the FRA were increased to 69, those retiring at 62 would have their full benefits reduced by about 40 percent. Nearly half of retirement beneficiaries claim benefits at age 62. The federal poverty level for African American seniors is projected to increase by 1 percent under this proposal.
- Replace the current cost-of-living adjustment (COLA) with the chained consumer price index. The COLA compensates for inflation by increasing benefits annually (when there is measured inflation). Calculating the COLA with the chained consumer price index (CPI), rather than the traditional CPI, is often presented as a purely technical correction, but using the chained CPI would reduce the amount by which the COLA increases each year. This change would reduce the mean Social Security benefit by 4.4 percent for African American seniors and 4.7 percent for white seniors by 2065.
This research aims to inform efforts to enhance beneficiaries’ financial well-being and the Social Security program itself, as well as make the program more equitable now and in the future.