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The Coming War Over Social Security

Is Social Security a good deal for Latinos? As the workforce gets browner in the coming years, it's a reasonable thing to ask whether Social Security taxes and benefits help all workers in the same way.
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As the Congress and the White House try to come to terms on bringing what the federal government spends and what it collects closer to each other, listen for loose talk. There's bound to be plenty of it on all sides of the debate.

This year, the government of the United States will spend a trillion dollars more than it takes in from your taxes and other revenues. A trillion. It's an amount that even during the huge deficits of the Ronald Reagan and George W. Bush presidencies, would have been unthinkable.

Republicans headed to a decisive takeover of the House and took back several seats in the Senate by selling voters on the idea that the government can't continue on that path. The deficits have to be reduced, said voters. President Obama says he agrees. Senate Majority Leader Harry Reid says he agrees. House Speaker John Boehner says he agrees. And now the search is on for ways to spend less money.

It is in this context that Social Security comes up again and again. After all, it's pointed out, the program is already committed to paying out more benefit to today's retirees than today's workers are paying in. Eventually, all the money the system has loaned to the federal government will be exhausted, and the system will be "broke." So Social Security, that line of reasoning goes, will only add to the deficits as Washington struggles to bring them down.

Not exactly.

For one thing, the FICA taxes paid by workers for the last 25 years reduced the annual deficits by more than $2 trillion. For another, can a program funded by all the working people of the United States really go "broke?" Wouldn't more than a hundred million workers suddenly have to stop paying FICA in order for Social Security to "run out of money?"

On this week's Destination Casa Blanca we asked whether Social Security is a good deal for Latinos. There's an honest debate to be had in the coming years over how the program works and whether big changes have to be made to keep it solvent and fair in the decades to come. As the workforce gets browner in the coming years, it's a reasonable thing to ask whether Social Security taxes and benefits help all workers in the same way.

The profile of the Latino population is a little different from the American population overall. As the country ages, Latinos are and will continue to be the youngest major population group. Latinos still earn less money than the average American worker. Latino workers, more than other Americans, tend to work in jobs less likely to provide an employer-sponsored defined-benefit pension plan, less likely to offer a 401k plan, and less likely to offer an employer contribution or match.

Lower-paid workers, in general, tend to save less because they use more of current income paying for the necessities of daily life. The Latino elderly have saved little for retirement, and will depend more heavily than other Americans on Social Security as a sole support in later years.

Hold on a minute, say critics of the program. If Latino workers owned their own accounts, rather than relying so heavily on Social Security, they would have a chance to play catch-up in later years to make up for less saving in younger years. More likely to live in extended families than other American elderly, retired Latinos who owned their own accounts would be able to pass on the accumulated value to their wider families even after they die. Right now, when a retired recipient dies, the payoff, after a lifetime of earnings, falls instantaneously to zero.

One more thing: When you look at the age profiles of the American population as a whole, and the Latino population, you see very different things. We are in the midst of a huge transition from a white majority workforce to a white minority workforce. The enormous baby boom cohort is retiring ... while huge groups of Latino teenagers and young adults are moving up to take its place.

Throughout their working lives, today's young Latinos will pay the benefits of a vast pool of white retirees. But when those young workers begin to retire and want to collect on the promises made while they were supporting the boomers in their old age, Social Security won't be able to pay its full promised benefit any longer. In the 2040s there will only be two workers for every retiree, and only enough money paid into the system to cover about 80 cents of every dollar promised in benefits.

Is that really a good deal for today's Latino workers?

The guests on the program wanted to reassure viewers that the program is a very good deal for Latinos, because it provides a guaranteed benefit, promises a benefit to those who haven't managed to save very much, and provides disability and survivor's insurance to worker's who often have little access to either. Latinos are still having bigger families than other Americans, and are the Americans who most frequently work in jobs with very little in the way of employer benefits.

Americans have been lousy savers in recent decades. That's all Americans. Millions of Americans in their 50s have almost nothing saved for retirement. Add to that the loss of home equity ... or homes, period ... the battering of the stock market and 401k plans ... the suspension of company contributions to worker saving plans ... the evaporation of pension plans when companies went bankrupt ... the list is daunting. Even families that thought they had done a good or fair job of getting ready are going to find themselves shockingly short of cash.

The new debate over making fundamental change has Congress members sadly shaking their heads and calling it something we "have to do" because of the "threat" of unfunded liabilities. That story line conveniently leaves out the fact that American workers have already loaned the federal government trillions of bucks. Listen carefully as Congress tries to grapple with a problem that is undoubtedly real, but may not be a crisis. The ladies and gentlemen who spent your money aren't being entirely honest about where it went. Watch your wallet.

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