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August 27, 2014

Report explores changing the economics of communities of color

progress

WASHINGTON, D.C.: A new report released today by the Center for American Progress highlights the value of improving Social Security’s long-term finances while lowering unemployment, raising earnings, reducing disability incidences, and cutting premature mortality risks in communities of color. It is undeniable that the rate at which communities of color are growing will naturally be beneficial to Social Security’s finances: Faster population growth—and hence faster employment growth—means more workers contributing their payroll taxes to the system.

The report, titled “A Win-Win For An All-In Nation,” contends that the population growth, coupled with the reduction of economic and health disparities between communities of color and non-Hispanic whites, has the ability to create a win-win situation for communities of color and Social Security. Communities of color would see higher living standards, and Social Security would see a financial boost.

The following is a summary of the report’s findings:

Population growth, due to the faster growth of communities of color, and its accompanying employment growth improves Social Security’s long-term financial outlook. Faster population growth means that more workers contribute to Social Security through their payroll taxes sooner. The latest trustees report of the Social Security Administration estimated that rising population growth—and presumably, long-term employment growth—due to higher fertility rates and increased immigration will improve Social Security’s finances. Increasing the fertility rate from 2 children born per woman to 2.3 children would lower the program’s 75-year shortfall by 12.8 percent. Increasing annual immigration from 1.125 million to 1.43 million people would cut the long-term deficit by 7.3 percent.

Raising wage growth by lifting wages among communities of color brightens Social Security’s long-term outlook. The latest trustees’ report estimates that inflation-adjusted annual wage growth of 1.76 percent—instead of 1.13 percent, which the trustees assumed in their intermediate scenario—would improve Social Security’s financial outlook and cut its future expected deficit by 34.7 percent. A higher minimum wage—which would benefit communities of color in particular—would also improve Social Security’s outlook.

Lowering disability incidences, which are especially prevalent among communities of color, would improve Social Security’s finances. The latest trustees’ report estimates in its intermediate scenario that 5.4 people out of every 1,000 people who have the potential to become disabled are awarded benefits annually. It argues that by lowering this number to 4.3 people, Social Security’s long-term financial shortfall could be reduced by 9.5 percent. Creating better jobs for communities of color is one way to help reduce disability rates.

“Increasing contributions to Social Security is vital to the program’s long-term success at a time when Baby Boomers are retiring,” said Christian E. Weller, co-author of the report, a Senior Fellow at CAP, and a professor of public policy at the McCormack Graduate School of Policy and Global Studies at the University of Massachusetts, Boston. “As the gap between the income Social Security receives from payroll taxes and the benefits it has promised widen with Baby Boomer retirement, Social Security’s trust funds will eventually run out of money. This could mean benefit cuts, tax increases, and even fund transfers from other parts of the government to cover the shortfall in 2033 and thereafter, unless something changes such as substantial improvements in the economic fortunes of communities of color.”

“Communities of color are growing at an impressive and inevitable rate, and policy investments that target their improvement are particularly important for the economic health of our nation as a whole,” said Farah Z. Ahmad, co-author of the report and a Policy Analyst for CAP’s Progress 2050 project. “In 2010, communities of color comprised more than 36 percent of the U.S. population, and they are projected to make up the majority of the nation’s population by around 2043.”

According to the report, policymakers can achieve a win-win outcome for both struggling communities and Social Security by embracing policies that improve the economic and physical health of communities of color, raising the living standards of communities of color today and substantially improving Social Security’s finances in the long term, lifting up the economic security of struggling, middle-class non-Hispanic white families and communities of color alike.



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