President Bush wants to give American women a Mother's Day present we'd be better off without: He's cutting our Social Security benefits when he promises not to, and making us repay more than our fair share if we choose to open a private account.
The president's plan for Social Security, which combines privatization with changes in the way future benefits are calculated, would cut promised benefits substantially.
Wait a minute, you're thinking: Didn't the president say that current benefit levels would be protected for low-wage earners? And wouldn't women's lower wages actually protect more of them from benefit cuts? Not really. Here's the problem. Yes, the president said that benefits would stay the same for workers who currently earn $20,000 a year or less, and that only the top 70 percent of earners would face cuts. But that's not exactly true.
Working women are more likely to be in the lowest 30 percent of the career earnings distribution. Despite their increasing presence in the labor force, they are still paid less than men for identical work; they are more likely to work in low-wage, pink-collar jobs; and they are more likely to work part time or spend time out of the labor force to raise children or care for elderly family members. And, because many women's Social Security checks are based on their husbands' earnings, not their own, they wouldn't be insulated from the president's benefit cuts. So much for protecting low-wage women.
Meanwhile, for the woman "lucky" enough to fall in the top 70 percent of earners, whether by virtue of her own earnings or her spouse's, the cuts would be progressively deeper over time. Eventually all workers would end up receiving about the same benefit, essentially transforming Social Security from its role today as a dependable, guaranteed retirement benefit into a bare-bones safety-net program.
For the American middle class, this plan means big cuts over time; an average earner born today would have her benefits cut nearly 30 percent. Middle-income workers can't afford it, as two-thirds of all retirees now get more than half of their income from Social Security. With employers offering fewer and leaner private pensions, future retirees will have even less income outside of Social Security.
When a worker no longer brings home the bacon due to retirement, disability, or death, Social Security provides baseline income security for not only the worker but also that worker's family. Wives (or husbands) of retired or disabled workers can receive 50 percent of their spouses' Social Security benefit if it's higher than the benefit they qualify for on their own. Because a wife's lifetime earnings rarely exceed her husband's, women are much more likely to receive spousal benefits as wives or widows.
In 2001, more than 6 million women had earned Social Security as workers but received higher benefits as a widow or wife. Their husbands are likely to be in the top 70 percent of the career earnings distribution. Not only would the husbands have their benefits reduced under partial price indexing, the 50-percent spousal benefit received by wives and widows (and children) also would be cut. That's why many women in the bottom 30 percent who are being promised that their benefits will not be cut are in for a nasty shock. This problem gets worse over time. The number of working women entitled to a higher benefit based on their husband's earnings is expected to grow from 28 percent of all women in 2000 to 38 percent in 2040.
That's not the only thorn on this rose. Private accounts would hurt women, too. Anyone who opens a private account would actually be borrowing money from the government. The government would keep lending you money to put into your account each year, and would keep track, just like a bank. At retirement, you'd have to pay back what you borrowed plus 3-percent interest and inflation compounded each year, leaving you with whatever -- if anything -- you'd been able to make above that.
Yale University financial economist Robert Shiller finds that, under a realistic rate of return, the life-cycle portfolio loses money 71 percent of the time. In other words, most folks lose the gamble and would have been better off never opening an account. But let's assume you're one of the lucky ones who made money. The government would convert your debt into a monthly repayment and subtract what you owe from the (already reduced, in most cases) Social Security check you get each month.
Workers who die sooner after retirement (read: men) wouldn't have time to repay all they've borrowed from the government. Instead, workers who live longer after retirement (read: women) would pay the government back more than their fair share of what was borrowed.
I'm not sure how the lawmakers who are pushing indexing changes and privatization are explaining this to the mothers in their lives this weekend. I'd bet they're just sending roses.
Amy Chasanov is deputy policy director of the Economic Policy Institute, a nonprofit, nonpartisan think tank in Washington, D.C.
