Homestead mailing list

[Gene GeRue <genegerue AT ruralize.com>]

Women and Children First

By MICHAEL C. LARACY

Published: January 8, 2005

Baltimore

PROPONENTS of Social Security reform, especially those looking for a way to 
pay for the huge costs of a transition to partial privatization, should 
keep in mind the law of unintended consequences. One of the ways being 
touted to find the money both to make the system more solvent and to 
finance the personal savings accounts proposed by President Bush would harm 
the spouses and children of workers who die before retirement.

Understandably, almost all of the debate about Social Security reform has 
focused on the effects on future retirees or on the federal budget deficit. 
This overlooks the role of Social Security as a life and disability 
insurance program, one that provides vital benefits to spouses and more 
than five million American children in families whose breadwinner died 
prematurely or became disabled. Benefit changes that may be tolerable for 
future retirees could have devastating consequences for these survivors.

When the federal government created both welfare and Social Security during 
the Great Depression, it envisioned welfare as a temporary program. 
Eventually, policy makers believed, Social Security would replace both 
welfare and the numerous underfinanced state programs for widows and 
orphans. They were wrong about welfare, but they were right about Social 
Security.

Today, more children rely on Social Security benefits for part of their 
family income than on Temporary Assistance for Needy Families, the nation's 
main cash welfare program. These benefits represent a substantial share of 
these families' total income for child beneficiaries. If someone earning 
$32,000 a year, close to the national average, dies at the age of 40, 
annual benefits for his three children would be $25,000, replacing roughly 
78 percent of his earnings. That's not exactly comfortable, but it's a lot 
better than the federal poverty level, which is about $19,000 for a family 
of four.

According to government actuaries, a young worker with average earnings, a 
young spouse and two young children has Social Security protection equal to 
a life insurance policy with a face value of $400,000 and a disability 
policy of about $350,000. For the surviving children and their widowed 
parent, Social Security represents the difference between getting by and 
dropping into poverty and reliance on welfare.

That legacy may now be threatened. Some in the Bush administration have 
endorsed the idea of changing the way in which benefits are determined by 
linking benefit increases not to the rise in average wages, but rather to 
the rise in inflation.

Currently, workers' anticipated initial benefits rise each year in step 
with the national average wage. It's called wage-indexing, and it ensures 
that Social Security continues to replace about the same proportion of 
retirees' pre-retirement incomes from one generation to the next. But 
inflation increases slower than wages, so under the administration's 
preliminary proposal, Social Security benefits would fall over time.

This change would save the system trillions of dollars - yet it would also 
mean that over time the percentage of pre-retirement income replaced by 
Social Security would decline. Instead of replacing about 40 percent of 
wages for the average worker, as under current law, the replacement rate 
would drop slowly but surely over the next several decades, down to 22 
percent by 2065. Instead of an annual benefit of about $26,400 (in today's 
dollars), the average retiree or survivor would get just $14,600.

Those in favor of personal accounts say that workers who invest wisely (and 
stay lucky) during the decades before they retire could make up much of the 
difference. While that argument may or may not be valid, it applies only to 
workers fortunate enough to make it to retirement. The surviving children 
and spouses of workers who die before they accumulate their nest eggs would 
get less. Because survivors' benefits are based on the same formula used to 
set retirement benefits, proposals to curtail future benefit increases 
would lower benefits for children unless specifically exempted.

Those benefits are vital. For many hard-working parents, Social Security's 
life and disability insurance is the only source of coverage for calamities 
outside their control. Only about half of private-sector workers have life 
insurance through their employers; for low-wage workers, private life 
insurance is a rarity and disability insurance is still rarer. If the 
government changes the way it calculates Social Security benefits, then 
millions of children would suffer when a parent dies without leaving them 
generous savings or life insurance.

It was only a decade ago that Congress enacted legislation to "end welfare 
as we know it." It would be a disaster if Congress were to reform Social 
Security in a way that would slowly swell the ranks of the poor and 
welfare-dependent with an army of "widows and orphans."

Michael C. Laracy is a senior associate at the Annie E. Casey Foundation.

http://www.nytimes.com/2005/01/08/opinion/08laracy.html