Social Security reform is a particularly pressing issue for Latinas, who rely on Social Security income more than almost every other demographic group. Without it, 61 percent of Latinas age 65 and over would be living at or below the federal poverty level. Hispanic women tend to use Social Security benefits longer than other groups, since they have greater life expectancies than men, white women, and black women. Given its importance for Latinas, it is crucial to understand the current debate surrounding Social Security.

Designed to protect the elderly and those who cannot work from poverty, Social Security provides retired individuals, disabled workers, and the families of deceased workers with financial benefits. Social Security has become the most significant source of income for the majority of retirees over the age of 65.

However, most of the money that is used by the government to provide Social Security benefits comes from payroll taxes—so the fact that Americans are living longer, having fewer children, and spending more time in retirement means that Social Security funds are running dry.

According to the Government Accountability Office (GAO), an independent and nonpartisan agency that studies the programs and expenditures of the federal government, funds will begin to fall short by 2018, and by 2042, they will be insufficient to fully finance benefits. According to a recent GAO report on retirement and disability, “Social Security faces severe, long-term, structural financing challenges that if not addressed, could lead to the depletion of its trust funds.”

Although most people agree that Social Security needs some kind of reform, the questions of how and when to reform Social Security are key points of contention in the current debate. According to the GAO, Social Security reform could be implemented in a number of different ways, including by increasing payroll taxes, reducing Social Security benefits, or encouraging older workers to delay retirement.

The Bush administration is considering a number of alternatives for reforming Social Security, but the most prominent is “privatization,” a plan that would allow younger workers to put part of their payroll taxes in personal retirement accounts and invest the money in a mix of bond and stock funds. Opponents of Bush’s reform agenda argue that Social Security privatization would result in reduced benefits, and possibly risky investments, for those who chose to privatize their accounts.

To showcase these different perspectives, LATINA Style turns to two of the most prominent Latinas in politics, U.S. Treasurer Anna Escobedo Cabral and Congresswoman Grace Napolitano (D-Calif.).

What is your position on President Bush's plan for Social Security, and why?

Anna Escobedo Cabral: The President’s top domestic priority is saving Social Security and I share his commitment to finding a permanent fix to the problems facing the 70-year-old system. President Bush shares our community’s goals of decreasing poverty in the Latino community, ensuring that Social Security is solvent for generations to come and allowing participants to grow a nest-egg which could be passed on to loved ones.

For the Latino population, the Social Security debate will be of the utmost importance as Hispanics rely on the system more than many other Americans. Within our community, nearly 40 percent of Hispanic beneficiaries rely on Social Security for all of their income and three out of four rely on it for at least half their income. Moreover, because we are one of the fastest growing and youngest groups, we will also bear a greater share of the burden of supporting the current pay-as-you-go system. If we don't take steps now to fix Social Security, we'll be placing an unfair burden on future generations of workers.

President Bush understands the significance for our community and he has proposed measures – such as the creation of voluntary personal retirement accounts – that would greatly benefit Hispanic Americans.

Grace Napolitano: We are still waiting for the president to introduce a concrete plan. He has just hinted at what he is thinking about doing, but no one has seen a proposal. His suggestion to allow all U.S. workers to put part of their earnings into private investment accounts would definitely erode the Social Security system and create another government bureaucracy that would cause uncertainty for new investors.

An April report from the nonpartisan Congressional Research Service found that the president’s plan effectively phases out guaranteed benefits by changing their formula and applying a privatization tax for those who opt to use the private accounts. For people who have for been putting their hard-earned money into the system for years, the president’s idea would replace their safety net with a risky gamble with no assurance of a stable return of investment. If this roll of the dice does not pay off, the federal government and taxpayers would be stuck with the bill and Social Security recipients would see benefits that are diluted, diminished or deleted.

Do you believe that there is an urgent need to reform Social Security in the immediate future?

Grace Napolitano: There is a need for Social Security reform to ensure its stability, and Congress must act. However, the president’s claim that Social Security is going broke is misleading at best. The sky is not falling, although there is no doubt that the system needs to be strengthened to meet future obligations to those who pay into the system and expect their benefits once they retire. Social Security has been effective for 70 years; prior predictions of its demise have been totally overstated.

But even without reforms, the Social Security fund will be able to meet 100 percent of its obligations until 2042. By that date, the principal will be exhausted, but the system will still bring in enough revenue from taxes to pay nearly 75 percent of benefit amounts. An even rosier Congressional Budget Office report released as recent as June 2004 says the system will be able to pay full benefits until 2052, and 80 percent after that.

Credible proposals have been introduced by Democratic members but have not been afforded an opportunity to be heard. We are open to any idea that would strengthen Social Security, but we cannot and will not accept a solution that will destroy it. We must take the time to do what needs to be done now, what is right, instead of passing a bad bill.

Anna Escobedo Cabral: Social Security is safe for today’s seniors and for those nearing retirement – but it is in serious danger for our younger workers. In 2008, baby boomers will begin to retire, by 2017, the government will begin to pay out more in Social Security benefits than it collects in payroll taxes, and by 2041 – when younger workers begin to retire – the system will be bankrupt. The longer we wait to fix the problem, the more expensive it becomes. If we fail to act now, we will saddle our children with an increasingly large burden.

The President has made it clear that all options are on the table for strengthening Social Security, with the exception of raising the payroll tax rate. He has laid out principles that must guide reform and has pledged to work in good faith with Congress on this issue.

Fixing it is quite simply our responsibility to our children and grandchildren. For those who are 55 or older, the President has made clear that Social Security benefits are solid. They will not change. There is no need for those born before January 1, 1950 to change retirement plans or strategy because of Social Security reform. But it’s the children and grandchildren – the younger workers and future workers – who we need to worry about. They are the ones for whom we need to save and strengthen the system.


Would the President's reforms of Social Security impact Latinas positively or negatively?

Grace Napolitano: Almost half of all Latinas currently on Social Security rely exclusively on their benefit check in retirement. The low wages they have earned during their working years did not afford them much opportunity to invest their money in the market.

Because Social Security is specifically designed to boost the retirement income of low earners with a progressive benefit formula, the program has played an enormous and necessary role in keeping Latinas out of poverty. This formula is automatically adjusted to inflation, which is another benefit for Latinas, whose life expectancies are relatively long.

If these same women were to invest their money in a private account, they would have a lot less to show for it and could eventually end up mired in poverty in their golden years. Because of their low earnings and family obligations, Latinas would not be putting much money into these private investment accounts. Add to that management fees for the account and the proposed changes in the formula for guaranteed benefits, and an average Latina could wind up losing thousands of dollars under this proposal.

All of these concerns over the president’s idea revolve around the most basic problem: the risk. I am not criticizing investing in the stock market; I am an investor. And I fully support supplementing Social Security with other retirement income such as a 401(k) plan. Because of my own experience with market fluctuation, I recognize the great risks one takes on investments. This converts the Social Security safety net into a risky proposition many cannot afford to take.

Anna Escobedo Cabral: The Hispanic community, as a whole, and Latinas in particular, are among those with the most to gain from the President’s proposals, particularly by creating economic assets under their control. Personal accounts are part of a comprehensive solution to help resolve the long-term challenges to Social Security in a way that is fair to future generations. They would accelerate the American tradition of upward mobility and individual independence.

President Bush would like younger workers and future generations to have the ability to save some of the payroll taxes they are already paying, to build savings that belong to them, not to the government. With voluntary personal accounts, younger workers would have the chance to learn about their financial choices and build a nest-egg. Personal accounts can be implemented in a way that allows us to make an investment up front that saves money for the system later. They would give our children and grandchildren the promise of a better retirement, and they would help our country create a larger pool of savings.

Personal accounts would benefit Hispanics in particular by capitalizing on our earlier, additional working years for retirement because every year’s contribution to an account would add to a worker’s total benefits. The savings in a personal account would remain secure and continue accruing interest even during periods of unemployment.

Based on conservative estimates, workers who average $35,000 a year over their lifetime and invest 4 percent of their payroll taxes into personal retirement accounts consisting of a conservative mix of bonds and stocks could see their investments grow to almost $250,000.

In what is perhaps the most important change to the system, personal retirement accounts could be passed on to loved ones. Each personal account would be under the individual worker's ownership and control. Those who elect to have a personal account would make regular investments in conservative bonds or stocks throughout their working life, then either choose to use those investments for retirement expenses or leave them as an inheritance for the next generation. Personal accounts would enable Hispanics’ earnings to grow – with the right to pass on their account balance should they die before exhausting it.

A financially sound system ensures that Social Security and related benefit programs -- SSI, disabled and survivor’s benefits – continue to be available. Reform is critical to ensure that our children can count on the system.

According to LULAC and AARP, 85% of Hispanics believe that Social Security should be changed in the near future, but most do not believe that Social Security should be privatized. In your opinion, how should Social Security reform be presented and publicized within the Hispanic community in a way that relates to their particular needs?

Anna Escobedo Cabral: President Bush is not seeking to privatize Social Security, but rather to strengthen the system so it is there for younger workers. The federal government would continue to operate Social Security, delivering benefits to today’s seniors and tomorrow’s seniors, whether or not they choose personal accounts.

A recent study by the nonpartisan Pew Research Center (http://pewhispanic.org/reports) shows Hispanics support personal retirement accounts. The public opinion survey found that about half of all Latinos favor a plan of the sort proposed by the President that would allow wage earners to put some of their Social Security taxes in personal accounts.

As the youngest, fastest growing population group in America, Hispanics would directly benefit from the option to save a portion of their payroll taxes in a conservative mix of bond and stock funds. Unlike paying into the Social Security system, personal accounts ensure that your Social Security taxes are saved to pay your Social Security benefits, not spent on other government programs.

Personal retirement accounts give workers ownership and control and can be invested in a limited number of broadly diversified funds that will give workers the opportunity to earn a greater rate of return than the current system can provide. Upon retirement, workers can use those investments for expenses and leave unspent balances as an inheritance for the next generation. And, unlike the current system, in the event that a worker dies prematurely, he or she will have an asset to leave to heirs.

Grace Napolitano: Our political leaders must be honest and forthcoming with data that will allow citizens to use facts and figures to judge for themselves what state Social Security is in. President Bush has consistently used rhetoric – a lot of words and assurances – and that is not convincing given his past record. Utilization of scare tactics in pronouncing Social Security’s failure is wrong and unfair.

We must level with the people and explain to them that Social Security will first face funding problems in 2042 that can be fixed now with changes that do not undermine and ultimately drain from the entire program. We must also explain to them the truth: the costs and the effects they may see with the proposed changes. There is no free lunch. If Congress doesn’t raise taxes, you cannot get a private investment account without forgoing a portion, possibly all, of your guaranteed benefit check.

Our Hispanic community needs to understand how important the Social Security system is for not only its contributors, its retired citizens, but also its disabled workers. Latinos are disproportionately more likely to be injured on the job than other ethnic groups. Today, those disabled while working receive benefit. Under the president’s plan, those benefits would be drastically cut or possibly eliminated under the president’s push to delete what he considers “unnecessary programs.”

There is no need for such drastic changes, but we must work to stabilize Social Security. We must not gamble with our nation’s social insurance program, one of our most popular and effective federal programs that has remained dependable and stable for the past 70 years. Let’s make sure we keep it that way.