NCPA - National Center for Policy Analysis

Social Security Currently Victimizes Low-Income and Minority Workers

December 13, 2001

Because the present Social Security program lacks property and inheritance rights, low-income and minority enrollees are deprived of the right to pass along what small stake they may have built up in the system. So concludes a recent study by the Cato Institute entitled, "The Impact of Social Security Reform on Low-Income Workers."

The author of the study, Federal Reserve Bank economist Jagadeesh Gokhale, finds that:

  • The distribution of bequeathable wealth among retirees in the U.S. is highly unequal.
  • Many modest households -- particularly minority households and those with low education and earnings -- currently save very little and therefore own almost no financial wealth at retirement.
  • The poorest 20 percent of the elderly depend on Social Security for 81 percent of their retirement income -- while Social Security provides only 20 percent of retirement income for the wealthiest fifth of retirees.
  • Allowing workers to save and invest a portion of their Social Security taxes in individual retirement accounts may avoid or offset potential benefit cuts without increasing taxes.

Social Security may be reducing or eliminating the inheritances of children in poor households -- but not in wealthy households. In turn, this may reinforce the chance that children of the poor themselves arrive at retirement with low levels of bequeathable wealth.

Source: Jagdeesh Gokhale, "The Impact of Reform on Low Income Workers," Social Security Paper No. 23, December 6, 2001, Cato Institute, 1000 Massachusetts Avenue, N.W., Washington, D.C. 20001, (202) 842-0200.


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