At our November 15  meeting [a local candidate] told us of the positive experiences he had gathering signatures in East Palo Alto and of an insight one of his neighbors shared: “Did you ever realize how racist Social Security is? Blacks don’t live as long as whites, so Social Security overtaxes black workers to subsidize white retirees. It’s another government redistribution-of-wealth scam.” Curious to know the actual numbers, I did a little research, consulting the Historical Statistics of the United States Colonial Times to 1970 (series B 116-125) and the Statistical Abstract of the United States 1992 (Table 104).
The data for 1929-1931 (presumably used as the actuarial basis of the Social Security Act of 1935) show that the life expectancy of a white male at age 20 was then 46.0 years: His peers, on average, would live one year past retirement age at age 65. Many would live longer, but a similar number would have been expected to die without receiving any benefits. Thus Social Security, at the outset, was primarily an insurance plan – covering the possibility that one might live longer than the then average 66 years. Because only a minority did, premiums were low – 3% of one’s salary. The system was actuarially sound.
In subsequent years, Congress ignored the actuaries (something that would be anathema in the world of private insurance) and failed to change the system to reflect increasing life expectancy. In 1989 the life expectancy of a white male at age 20 had risen to 54.0 years. Because practically all [white] participants now live past the age of 65, Social Security now functions primarily as a (badly run) savings plan and only secondarily as an insurance plan, hence the increase in the Social Security tax rate to 15%. Broadly speaking, the first 3% still represents the “insurance premium” covering the contingency that a participant might live past the 74 year average life span for his group and the additional 12% attempts to cover payments between age 66 and age 74. (12% isn’t actually enough, but that’s another article…)
Now, here’s the interesting part: By 1989, the life expectancy of a black male at age 20 had only just risen to 47.1 years – roughly that of white males at the time the Social Security system was designed. Were black males permitted to form their own (privately owned) “Social Security systems”, their premiums today should be the same 3% figure that white workers paid in the 1930s. In other words, roughly $12 of every $15 paid by today’s black worker will be transferred through the magic of “Social Security” to white retirees and only $3 will come back to his peers in retirement benefits.
The “New Deal” is a bit more like the “Old Deal” than you might have thought!