Study - Minorities could be hurt in overhaul of Social Security

WASHINGTON -- Minorities are greatly helped by disability and survivor benefits in the Social Security system and would be hurt by an overhaul that instead linked benefits mostly to contributions, congressional auditors say.

The General Accounting Office report Wednesday appeared to contradict contentions by supporters of Social Security-linked personal investment accounts that minorities fare worse in the current system.

President Bush has proposed letting younger workers invest a portion of their payroll taxes in the stock market, much like a 401(k) plan.

Proponents have said minorities are hurt in the current system because on average they don't live as long as whites and earn benefits for a shorter time. A system of personal accounts would let minorities bequeath their earnings to family, so the income wouldn't be lost, they say.

But the new report said that when disability and survivor benefits are taken into account under the current system, minorities actually fare as well as whites based on a ratio of benefits earned to taxes paid.

Plans that "tie benefits more directly to contributions may affect the progressivity of the system and are likely to disproportionately affect equity for minorities," said the report, prepared for Rep. Robert Matsui of California, the top Democrat on the House Ways and Means Social Security subcommittee. Matsui opposes personal accounts.

The report calculated the ratio of lifetime benefits to taxes paid using 2001 trust fund data and a payroll tax increase scenario.

Social Security retirement benefits are based on workers' earnings, and are intended to replace part of that income.

Blacks and Hispanics on average have lower lifetime earnings than whites. They also have higher disability rates.

The system's disability component, which pays benefits to retired and disabled workers and their dependents and survivors, means minorities generally will receive greater benefits in relation to the taxes they pay. Disability benefits can be earned at any age, as long as a person has enough work history.

As for death, mortality rates determine the expected number of years a person will contribute taxes and receive benefits and therefore the amount of total benefits received.

Although blacks die younger than whites and may receive fewer years of retirement benefits, they may have dependents that that would earn survivor benefits, the study said.

For example, 47 percent of blacks receiving survivor benefits are children, compared with 22 percent of whites.

Overall, about 18 percent of white retirees 65 and older rely on Social Security as their only source of income, compared with about 38 percent of blacks and Hispanics. The report did not list other minority groups.