Statement of Niesha M. Wolfe, Chief Executive Officer,
Niesha M. Wolfe CPA Firm, Clarksville, Tennessee,
and Member, Women Impacting Public Policy, Oklahoma City, Oklahoma

Before the Subcommittee on Social Security,
 House Committee on Ways and Means

Hearing on Social Security Improvements for Women, Seniors and Working Americans

February 28, 2002

Good morning Mr. Chairman and members of the Committee.  My name is Niesha Wolfe and I am CEO of Niesha M. Wolfe, CPA firm.  We specialize in small business accounting and tax services in Clarksville, Tennessee.    I am also a member of Women Impacting Pubic Policy (WIPP) and present this testimony in behalf of WIPP’s more than 250,000 members.  WIPP is a national bi-partisan public policy organization that advocates for and in behalf of women in business, strengthening their sphere of influence in the legislative process of our nation, creating economic opportunities and building bridges and alliances to other small business organizations. 

The Center for Women’s Business Research, founded as the National Foundation for Women Business Owners (NFWBO) 2002 statistics reflects there are 6.2 million women business owners with majority ownership.  These firms employ more than 9.2 million workers (52 percent of those workers being women) and generates more than $1.15 trillion in annual revenues.

One of the most important concerns in the Social Security reform debate pertains to how American women would be affected, both under reforms and under the current system.  American women are more likely to live in poverty during their retirement years than are men.  Women are also comparatively more likely to rely on Social Security to provide the majority of their retirement income.  The stakes for women in the Social Security reform debate are extremely high thus, focusing the debate on how women will be impacted is critical.

The problem for small business:

The “three legged stool” of Social Security, personal savings and public and private pension plans is being increasingly threatened.   The current “pay as you go” system will become a serious drag on the economy and will limit economic growth if it is not reformed soon.  The projected growth in the costs of the Social Security program will crowd out other programs.  We are faced with a Social Security system that is unsound, a rapidly aging population and unacceptably low rates of personal savings.  We need significant public policy and social responses to these issues.

Social Security and Women:

Apart from questions of the systems solvency, there are various factors that lead to differential treatment of women under the Social Security system.

• Women, on average, live longer than men.  On the positive side, this means that women are less likely than men to die before receiving their money’s worth from the Social Security retirement program.  At the same time, as women live longer, their need for benefits increases, as the chances grow that they will “outlive” their non-Social Security savings.
• Women, on average, have lower lifetime earnings than men.  Though less true today than at the time of Social Security’s inception, it is still the case that work interruptions and pay-level differentials produce an expectation of lower lifetime earnings for an American woman relative to an American man.  Social Security has a progressive benefit structure in which a higher rate of return is paid on low-wage contributions than on high-wage contributions.  As women are more likely to have low-wage histories than men, they are thus more likely to receive this slightly higher rate of return—but on a lower level of earnings.  With more and more women opening their own businesses, this will begin to change; however, we have a number of years to go before we see what types of changes this will bring to the current system.  Women who take time away from employment to raise a family or care for others including parents have shorter working careers and lower lifetime earnings than those who have unbroken careers.  Lower lifetime earnings lead to lower long-term contributions to Social Security and pensions and therefore lower benefits in retirement.  Numerous studies show women achieving stronger roles and greater importance in the work force.  Approximately 75 percent of that work force will pay more in Social Security taxes than they do in income taxes.  This leaves them little or nothing to save or invest for their retirement. 
• Higher poverty rates for elderly women persist under the current system—with warning signs for tomorrow.  Under the current Social Security system, one in five retired women is left in poverty after the death of their spouses.

Poverty among elderly women is highest among widows, divorcees and the never married.  The growing number of young women in the latter two categories suggests that many future elderly will miss out on the “social insurance” protections of the current Social Security system.  Another key problem facing divorcees, is if the marriage lasted for fewer than 10 years, or if the divorced woman remarries, she may lose all claim to benefits based on her previous marriage.  The large increase in divorce rates over the past decades will mean an increased percentage of women entering their elderly years without the income protections that have traditionally been extended to married women and to widows. 

Social Security IS very important to women.  Maintaining the current system would do little to help them, and in fact, do more to stifle any creation of individual or family wealth.  According to The Heritage Foundation:   

• In most cases, women receive little benefit from their husband’s Social Security after his death.  Social Security only pays survivors benefits if there are children under the age of 18, or if the widow receives lower benefits than her husband does. 
• If the wife receives either the same monthly Social Security retirement benefit as her husband, or a larger one that he did, all she gets is a $255 death benefit. 
• Because Social Security benefits are calculated using a worker’s highest 35 years of earnings, women who spend more than a couple years out of the workforce caring for a family receive extremely low benefits.
• Numbers are even worse for African American women.  A 60 year old woman living in Chicago’s South Side earns the equivalent of only  2.75 percent a year after inflation.  Her 35 year old daughter would “earn” less than half that much (1.47), while her 15 year old granddaughter will “earn” just over a third as much as grandmother does (1.01 percent annually).  If these women had been able to invest their Social Security taxes half in government bonds and half in stock index funds, they could each have at least $250,000 more for retirement.

Proposed Actions to Address the Social Security Problem:

Congress must stabilize the Social Security system.  This may involve reforms in benefit formulas and/or payroll and benefit taxation.  Because any reform will impact the current populace and future generations; small and large businesses and the federal budget; in summary our country’s entire economic base, each consideration must be carefully analyzed as part of the “whole”.

WIPP’s members believe the following principles must apply to the reform process:

(1)  Education is essential.  As in life expectancy, we all want to believe we will live forever.  Therefore, we have a tendency to put off writing that will or creating a Trust for our children and thinking about retirement is in that same category.  Women must have access to more financial education pertaining to retirement and where and how Social Security will impact their lives.  As the leaders of WIPP visit with women business owners around the country, we realize that they are first generation business owners.  They are just now beginning to think about retirement and how they will pay for their financial security.  This is not to say that women don’t take time to educate themselves about Social Security or that they are not interested.  Information about Social Security’s benefits and its future are out there but it is not sufficient, it’s widely misunderstood, and women simply do not know who to believe about the system.  We should begin NOW to improve women’s understanding of Financial Security, reassure seniors that their promised benefits are secure and better educate all Americans about Social Security.

(2)  Permit workers to invest their retirement payroll taxes (FICA) in individually directed personal retirement accounts (PRA’s).  The system’s “pay as you go” character currently means that large near-term surpluses will be followed by large deficits.  These large cash imbalances would need to be addressed by some allocation of tax increases, benefit cuts, or federal borrowing.  The smaller the cash imbalances, the less likely that they will be resolved through benefit reductions.  Of the competing available means of advance funding Social Security—personal accounts vs. government-directed investment of the Trust Fund is much preferred.  Some personal account proposals modeled after the Thrift Savings Plan would protect property rights over personal account balances in the event of divorce, resulting in a level of protection that is greater than that present in the current Social Security system.  Also, women would benefit more, proportionally, from features that add to the progressivity of a personal account system, for example  through progressive contributions to accounts. Personal retirement accounts are safe and easy to manage.  If they were structured similarly to the federal government employees’ Thrift Savings Plan, they would offer three basic investment choices:   stock index fund, a corporate bond fund and a government bond fund.   Any of the three would allow the owner to earn more than what Social Security pays on her current taxes.

(3)  Oppose an increase in payroll taxes.  FICA is in many cases the largest and most burdensome tax small business owners pay.  It’s particularly tough because you have to pay it whether you’re profitable or not.  With a razor-thin profit margin, it can be a matter of survival.  If the federal government doesn’t structurally reform Social Security and payroll taxes have to increase to keep the benefit checks flowing, it’s going to put a lot of small, women-owned companies out of business.  One alternative to benefit cuts is simply to raise taxes.  Elderly women could simply hope that future congresses will agree to raise effective tax rates to the levels that are necessary to spare them from reductions in their retirement benefits.  This is not acceptable.

(4)  Guarantee a “safety-net” (minimum government benefit) for all retirees.  It should be very simple to develop a personal retirement account plan that includes a safety net with the same guaranteed level of retirement benefits that today’s Social Security promises.  The difference would be that a reformed plan includes the assets to meet its obligations.

(5)  Preserve the benefits of retirees and near retirees.  As America’s population ages, the ratio of workers to retirees will plummet, and the cost of paying Social Security benefits will rise dramatically under the current “pay as you go” system.  For American women, this probably means that tax revenues will be inadequate to fund the benefit promises on which they rely to a greater extent than men.  Although there will be a positive Trust  Fund balance the next few years, the choices facing Congress will be exactly the same as they would be if there were no Trust Fund at all (because Social Security contains no savings component):  cut benefits, raise taxes or increase federal debt.  This could leave a significant percentage of benefit promises subject to the results of future political arguments as to whether to resolve cash imbalances through reductions in benefits.

(6)  Oppose general revenue transfers (primarily income taxes) to Social Security in the absence of structural reforms.

(7)  Oppose government investment in the stock market

Other ideas to consider:

In the context of a broader reform that creates personal accounts, Congress could begin to address some of the other inequities inherent in our current system -- such as increasing the widows benefit and reducing subsidies from working to non-working spouses. 

(a)  Increase survivor benefits, in order that the surviving partner receives 75% of the total amount of benefits, which the couple received when both were alive. Many of our mothers today are trying to live on 25% less than what they were living on when their spouse was alive.

(b)  Reduce subsidies of one-earner couples by two-earner couples and singles.  One of Social Security’s strengthening features is that it is “ family friendly” in providing a substantial benefit for a non-working spouse.  The redistribution from two-earner couples from one-earner couples is, however, excessive to the point where couples that cannot afford for one spouse to stay home are effectively subsidizing the benefits of wealthier households.  For example, a high-incomed one-earner couple receives a superior rate of return to that of a low-income two-earner couple.  Some of these inequities could—and should—be alieviated, without destroying Social Security’s basic friendliness to one-earner households.  For example, many proposals would improve the targeting of spousal benefits by moving some of the non-working spouse benefit into the widow’s benefits.  At the very least, no proposal should be adopted that makes the existing inequities worse.

No one is talking about getting rid of Social Security!  The problem that we face is preserving Social Security so that future generations of women are protected from poverty.  A viable saving Social Security proposal will reduce the projected growth of tax burdens upon future generations.  The proposal must be subject to a rate of return analysis that relates total benefits to total tax contributions.  We know the problem and must rebuild the structure in a fair and equitable manner. 

Thank you for allowing me the opportunity to present these ideas to the Committee.  The members of Women Impacting Public Policy stand ready to support real structural, meaningful reform of the system and hope to work with you as you move forward with this initiative.