Olivia Mitchell

WASHINGTON (WOMENSENEWS)–An interim report issued last week on funding Social Security says women and minorities face particular disadvantages under the existing system and would benefit the most from proposed sweeping changes, such as providing private investment accounts.

The report by the Commission to Strengthen Social Security, appointed by President George Bush, concluded that without a massive overhaul, Social Security will pay out in benefits more than it collects through payroll tax contributions–15 years from now. A final report, due later this year, will make specific recommendations to fundamentally alter the nation’s social safety net, which currently mails out monthly checks to 41 million Americans.

On Capitol Hill and across Washington, Congressional Democrats and leaders of women’s organizations responded angrily to the report, which affirmed President Bush’s commitment to renovate Social Security, in part by privatizing a portion of the accounts. The report claimed such actions could be in the best interests of women and minorities–a statement that many disputed.

Each side accused the other of exaggerating the problems and trying to scare mature women and senior citizens.

Both sides agree, however, that more women are dependent on Social Security than men.

According to the Social Security Administration, women represent approximately 60 percent of all beneficiaries and approximately 72 percent of beneficiaries age 85 and older. For unmarried women, including widows, age 65 and older, Social Security constitutes 50 percent of their total income–but only 37 percent of the income of men in similar circumstances. Almost 75 percent of unmarried older women depend on Social Security for at least one-half of their income.

In early 2000, women’s average monthly retirement benefit was $697; men’s average benefit was $904.

Report: Women and Minority Men Would Gain From Privatization

The report stated that women and minority men, who traditionally make up the majority of low-wage workers and those relying solely on Social Security benefits in old age, would gain from privatization changes to the system. The changes would encourage more Americans to save and invest, the report said. Such private investments would receive a better return than those, such as the current payroll tax contributions to Social Security, linked to U.S. government bonds.

Deborah Briceland-BettsBut advocates for mature and older women disagreed. "What creates problems for older women, who are the most vulnerable and the most reliant on Social Security, is income inequity, and an average of 11 years out of the workforce–not getting a better return on the dollar," said Deborah Briceland-Betts of the Older Women’s League, an advocacy group for middle-aged and older women.

Women in low-paying or part-time jobs may contribute little to an Individual Retirement Account, while women outside of the workforce would put in nothing at all. According to economist Dean Baker, co-director of the Center for Economic Policy Research, a diversion of 2 percent of the payroll tax to privatized accounts would amount to a 20 percent cut in benefits for women who have not been a part of the workforce on a consistent basis.

Women’s Reliance on Social Security Means They Would Suffer Most From Cuts

A member of the President’s commission suggested that of greater concern for women is the potential for a reduction in benefits, as early as the year 2016.

"The current system is broken," said Commissioner Olivia Mitchell, a Wharton economist and an expert on pensions. She said that elderly women and the disadvantaged stand to lose the most should the shortfall in Social Security funding result in a cut in benefits. A 35 percent reduction in benefits could be necessary to cover an estimated increase in the number of retirees as of 2016, since falling birth rates mean fewer workers will be taking their place, she said.

As the ratio of beneficiaries to workers narrows, payroll tax contributions alone will not meet the demand, according to the report. The problem for women and low-wage earners has to do with "the 35 percent cut in benefits or 50 percent increase in payroll taxes that would result if we do nothing," Mitchell said. Since older women are more reliant upon Social Security as the sole source of income and because they live longer, "a 35 percent cut in benefits over the course of a woman’s retirement life could be disastrous," she said in an interview.

In the years since the system began, workers have contributed more to Social Security than has been paid out. With the surplus, known as the Social Security Trust Fund, government bonds were purchased. The nature of the Trust Fund, estimated to be worth $5 trillion in the year 2016, now lies at the heart of the debate.

"It’s kind of like a savings account," explained financial journalist Beth Kobliner. In years when income does not meet outflow, the system can dip into its savings account to meet its obligations, she said.

But, according to commissioner Mitchell, the government will need to use other tax revenues to provide the cash should the bonds be called in. "It’s a government-wide question of resource constraints. If we have to use tax revenues to pay Social Security benefits, we cannot use them to pay for other important things, like education or defense."

Opponents Challenge the Data in the Report

Baker, from the economic research center, attacks the premise of the report, however.

"They constructed calculations that were straight-out dishonest," Baker said. "They were deliberately misleading, and they have ignored the research." The Social Security Trust Fund is not in danger of defaulting, as the commission suggests, he asserts.

In fact, he said, the fund continues to operate on a surplus. "If we are not collecting enough in payroll taxes in 2016 to pay out benefits, we would use the interest from the bonds to pay out what is necessary."

Social Security was purposely designed to benefit those at the lower end of the earnings scale, and changes may alter the nature of this support, said women’s advocates.

Low-Wage Women Retain Greater Percentage of Earnings Than Wealthy

"The current system is actually quite generous to women, who are traditionally lower-wage workers," said Dr. Catherine Hill, study director for the Institute for Women’s Policy Research. Those earning lower wages receive a monthly pension check that constitutes a larger percentage of their earnings than those in higher-income brackets.

Changes could mean a loss in this progressivity, according to some experts.

Beth Kobliner"A privatized account by definition is not progressive," said Kobliner. The return from an IRA depends on how much and how well the individual invests. "There is no guarantee that people will invest their money wisely," she added. Lower-wage workers, who may be less educated or working in such low-paying fields as teaching and social work, may have more difficulty accumulating and managing such investments.

Spousal and widows benefits, too, could be jeopardized by changes. Social Security, as an annuity, provides social insurance for as long as one lives. "You cannot outlive your social security benefit. But you can live longer than the money from your IRA lasts," Kobliner said.

Critics Say Government Report Creates False Sense of Impending Disaster

On Capitol Hill, Democratic lawmakers disputed the report’s conclusions, accusing the White House panel of scare tactics.

"The Commission is attempting to frighten minorities and women, and is beyond cynical," said Rep. Rosa DeLauro, D-Conn., at a press conference. She denounced the findings as "distortions."

And Rep. Robert Matsui, D-Calif., senior Democrat on the House Ways and Means subcommittee on Social Security called the report "erroneous in its analysis," also accusing the commission of stirring the fears of the public.

"The purpose of this report is clearly to create a false sense of urgency and impending disaster," he said, disputing the report’s assertion that without massive cuts in benefits, tax hikes or an increased debt load, the system will be unable to meet all of its obligations.

Democratic women lawmakers sent a joint letter to President Bush expressing their disappointment in the commission’s report. However, Republican women supported the commission’s conclusions.

"Now is the time to reform the system and strengthen the return for beneficiaries so that we don’t have to raise the retirement age or increase payroll taxes," said Shelley Moore Capito, R-W.Va., co-chair of the Congressional Caucus on Women’s Issues, in a statement.

"Women especially should welcome this call to reform. With innovative and creative improvements to the retirement system, women would be able to build a more prosperous future with stronger benefits," the statement said.

Others suggested that politics–not the issues–contributed to the strong negative response from Democratic lawmakers and some women’s advocates.

"People are commenting on reforms that are not there, to needlessly raise people’s fear levels, because they may be thinking about the next election," said commissioner Mitchell, a registered Democrat. She added, however, that all commission members are committed to keeping part of the Social Security benefits as they are now: a reliable amount each month to all those who are eligible. "I will push hard for a focus on a serious social safety net."

She acknowledged that President Bush charged the commission to incorporate privatization in any proposal, but added that privatized accounts would represent but one piece of a larger solution.

Despite mounting criticism, the commission, co-chaired by former Sen. Daniel Patrick Moynihan, and Richard Parsons, chief operating officer of AOL/Time Warner, will move forward, to examine a range of solutions.

According to Mitchell, the group’s work has been successful thus far in bringing the issue to the attention of the American people. No one, she said, disputes the fundamental problem.

"The Social Security system is facing a financial crunch. That is a fact. We cannot just sit back and pretend that the problem will go away if we do not do something," Mitchell said. In the coming months, the commission plans to seek reaction from the public by posting a series of questions on the group’s Web site.

Ann Moline is a free-lance writer in Washington.