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Wednesday, January 26, 2005

Privatizing Social Security and Black Actuarials

Taking the initiative in the debate on the partial privatization of Social Social Security benefits, President Bush met with Black leaders yesterday:

Bush Shifts Focus to Race in Debate on Social Security
January 26, 2005 - Los Angeles Times

WASHINGTON - Race became a significant factor in the debate over Social Security on Tuesday as President Bush told African American leaders that the government retirement program shortchanged blacks, whose relatively shorter lifespan meant that they paid more in payroll taxes than they eventually received in benefits.

Bush's comments came during a private White House meeting with 22 black religious and business leaders who backed his reelection last year - marking a new line of argument in his attempts to win support for adding worker-owned investment accounts to Social Security.

In the blogosphere, James Joyner at Outside the Beltway observes:

The point on the racial disparity of Social Security retirement benefits has been made time and again, including by prominent liberal black leaders such as Jesse Jackson. For Bush to co-opt this as a major selling point of his reform effort is simply brilliant. Karl Rove at his finest, one presumes.

The President plans to offer more details about the plan in his State of the Union speech next week, but the basic thrust has been around for a while. Rich Lowry wrote:

There is a direct correlation between economic status and average life span. This means that blacks, who are disproportionately poor, partly for historic reasons, tend to have shorter life spans, especially black males. The average life expectancy of a black male is roughly 68.6. The retirement age of Social Security is set under current law to eventually rise to 67. You do the math -- this cannot be a good deal.

According to Social Security expert David John of the Heritage Foundation, one-fifth of white males die between the ages of 50 and 70. But one-third of black males die between those ages. If you die before you reach the age of 62, you have no chance of collecting benefits, and if you die shortly thereafter, you will not recoup the payroll taxes you paid into the system.

Lowry's data is not as informative as it appears at first. Some more detailed information about Black life expectancy:

Influence of Homicide on Racial Disparity
in Life Expectancy - United States, 1998
Centers for Disease Control and Prevention
Morbidity and Mortality Weekly Report - 9/14/01

In the United States during 1998, whites lived 6.2 years longer than blacks. Among the leading causes of death that contributed to the difference were heart disease (1.7 years; 27.4%), cancer (1.2 years; 19.4%), homicide (0.6 years; 9.7%), stroke (0.5 years; 8.1%), and "all other causes" (1.9 years; 30.6%). The LE differential was 6.4 years for males and 4.4 years for females. Among males, some of the leading causes of death that contributed to the LE differential were heart disease (1.2 years; 19.0%), cancer (1.0 years; 15.6%), and homicide (0.9 years; 14.1%), and among females were heart disease (1.2 years; 27.3%), cancer (0.5 years; 11.4%), and perinatal disease (e.g., birth trauma, birth asphyxia, ectopic pregnancy, and maternal death) (0.4 years; 9.1%). Stroke and human immunodeficiency virus (HIV) accounted for 0.3 years (6.8%) and 0.3 years (6.8%), respectively, of the LE differential among females and 0.4 years (6.3%) and 0.6 years (9.4%), respectively, among males. Homicide among black females contributed 0.2 years (4.5%) to the LE differential.

Much is being made of black life expectancy, but it should be noted that the figures usually parlayed are for life expectancy at birth. Today Hugh Hewitt, who discussed this issue on this afternoon's radio program, linked to life expectancy at birth actuarial here. That "at birth" table reflects Lowry's data, but is inadequate because life expectancy increases with age, as those dying young are not included in subsequent survey samples.

The following actuarial for 1999 is more informative, and shows an interesting phenomenon: the life expectancy gap for Blacks and Whites decreases with age, because of the higher incidence of certain causes of death for Black earlier in life, as described in the CDC excerpt above.

However, the gap doesn't close completely, so the President's general point about Blacks being shortchanged by the current system of Social Security retirement benefits still applies.

The first table is as originally posted, giving the life expectancy for years of life remaining at ages set at ten year intervals. In the second table I've adjusted the numbers to indicate expected age at time of death, to make comparisons easier. I used the year 1999 because that's the most recent year in the larger table in which the "all other" than White categories applies only to Blacks.

Life Expectancy by Age, 1850–2001

The expectation of life at a specified age is the average number of years that members of a hypothetical group of people of the same age would continue to live if they were subject throughout the remainder of their lives to the same mortality rate.

Data for periods 1900–1902, 1929–1931, 1998, 1999, relate to blacks only.
Sources: Department of Health and Human Services, National Center for Health Statistics; National Vital Statistics Reports, vol 52., no. 3, Sept. 18, 2003. Web: www.dhhs.gov .

 Age
Calendar period 0 10 20 30 40 50 60 70 80
White males                  
1999 74.6 65.3 55.6 46.2 36.9 28.0 19.8 12.9  7.5
White females                  
1999 79.9 70.5 60.6 50.9 41.3 31.9 23.2 15.5  9.0
Black males                  
1999 67.8 59.2 49.6 40.7 31.9 24.0 17.2 11.6  7.2
Black females                  
1999 74.7 66.0 56.2 46.6 37.4 28.7 20.9 14.0  8.6
 Age
Calendar period 0 10 20 30 40 50 60 70 80
White males                  
1999 74.6 75.3 75.6 76.2 76.9 78.0 79.8 82.9 87.5
White females                  
1999 79.9 80.5 80.6 80.9 81.3 81.9 83.2 85.5 89.0
Black males                  
1999 67.8 69.2 69.6 70.7 71.9 74.0 77.2 81.6 87.2
Black females                  
1999 74.7 76.0 76.2 76.6 77.4 78.7 80.9 84.0 88.6

Notice, for example, that at birth the Black male life expectancy of 67.8 years lagged 6.8 years behind the White male life expectancy of 74.6. At 50, though, Black male life expectancy was 74.0, vs. 78.0 for White males, closing the gap to four years. At 70, which will be the likely retirement age for most of those affected by any privatization, the gap closes further to 81.6 years for Black males to 82.9 for White males, only a 1.3 year gap. As the tables show, Black and White female life expectancies follow a similar, though less pronounced pattern.

Still, the gap remains, so while families of all ethnic backgrounds would gain from the transferability of privatized Social Security accounts, Blacks would gain more than Whites.

However, the debate over privatization isn't going to stay limited to retirement benefits. From the January 17 Minneapolis Star-Tribune:

But when the Heritage study was examined by actuaries at the Social Security Administration and by the Government Accountability Office, serious methodological flaws and numerous bad assumptions were uncovered. For example:

* Heritage failed to factor in the progressivity of Social Security benefits; on a taxes-paid to benefits-received ratio, those with lower incomes get more back. Blacks tend to earn less than whites, and thus their Social Security benefits are larger in comparison to taxes they pay.

* Social Security is more than retirement benefits. It also includes survivor and disability benefits. Blacks benefit disproportionately from those programs. While blacks are 11 percent of the workforce, for example, they are 18 percent of those receiving disability benefits. Almost half the blacks receiving Social Security -- 47 percent -- are getting disability benefits or survivor benefits.

The Social Security actuaries found that Heritage had exaggerated substantially the amount blacks pay in Social Security taxes and low-balled the benefits they receive. "In fact," the actuaries said, "results from more careful research reflecting actual work histories for workers by race indicate that the non-white population actually enjoys the same or better expected rates of return from Social Security than for the white population."

The GAO reached the same conclusion. It said that, "In the aggregate, blacks and Hispanics have higher disability rates and lower lifetime earnings, and thus receive greater benefits relative to taxes [paid] than whites."

While Bush didn't mention Hispanics, he probably will, as Heritage did, with similarly misleading results. Both the GAO and Social Security actuaries found Hispanics, too, in the aggregate, benefit more than whites from the Social Security system. Hispanics actually live longer than whites, and thus the mechanism that links their future benefits to inflation (which the Bush administration wants to undo) is particularly important. Currently, as Hispanics grow older, Social Security makes up a more and more important element of their income.

Deroy Murdock anticipated this tack back in 2001:

Social Security's advocates state that blacks benefit more than others from this entitlement's disability and child survivors' components. It is cruel to argue that blacks should stay trapped in a retirement plan that only pays off if they get injured. Nonetheless, Moynihan adamantly told the commission: "There is no question that we will keep the survivor's and disability programs. They are integral to the system."

Social Security Choice also would help blacks close the asset gap. The median U.S household in 1998 held $17,400 in financial assets, including retirement funds. For black households, the figure was just $3,060. Allowing black Americans to invest their own tax money will bridge this dividend divide.

The Bush Administration is seeking to invoke the late and well respected Senator Moynihan, but is encountering some resistance (surprise!) from the New York Times.



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