Historic Events for Students: The Great Depression. Editor: Richard C Hanes & Sharon M Hanes. Volume 1. Detroit: Gale, 2002.
Historians consider the Social Security Act of 1935 one of the most revolutionary pieces of social legislation ever passed by Congress. The Social Security program was one of many pieces of legislation passed as part of President Franklin D. Roosevelt’s (served 1933-1945) New Deal. The New Deal was a sweeping series of federal relief and recovery measures passed between 1933 and 1938 designed to bring prosperity back to the United States. The measures greatly increased the role of government in the daily lives of citizens and in the private marketplace of the economy. The Social Security program speaks to a universal human need—the need to face the future with some measure of economic security. All people at one time or another face uncertainties brought on by job loss, illness, disability, or old age.
Prior to the twentieth century, most people in the United States relied on the family farm and their extended family for economic security. The industrial revolution brought fundamental and permanent changes. By the early twentieth century being old, disabled, or jobless too often meant being penniless and helpless. The Great Depression triggered a crisis in the nation’s economic life more severe than ever before. Twenty-five percent of workers could not find employment, and poverty among the elderly grew dramatically. By 1934 over half the elderly in America lacked sufficient income to support themselves.
By 1934 President Roosevelt was convinced the nation needed some sort of long-term social insurance program. Social insurance is a broad term referring to government sponsored social programs such as old age retirement programs, unemployment insurance, support for workers injured on the job, and healthcare programs. Social insurance programs had been prevalent in European countries since the late nineteenth century.
President Roosevelt assembled a team in the summer of 1934 to hammer out details of an American social insurance program, called a “cradle to grave” plan. Thirteen and a half months later President Roosevelt signed the Social Security Act of 1935. Americans eagerly climbed on the bandwagon of Social Security and have proved fiercely protective of the program ever since.
The original Social Security Act of 1935 reached out to Americans under four broad categories: (1) monetary assistance for needy elderly persons, children, and blind individuals; (2) a federal old-age retirement plan; (3) unemployment compensation; and, (4) extension of public health services. For the first time the American public came to expect that the federal government would be involved in its social welfare.
In the years following 1935 the Social Security program broadened to include survivors’ benefits when a family’s wage earner dies, disability benefits, health care benefits, and automatic cost of living increases. The program has remained flexible and changed over time to meet changing circumstances. The twenty-first century brings new challenges with an aging population and a continuing need to provide security for workers and their families.
Introduction of Social Insurance
The campaign for a general security program had to be conducted on a broad front involving the viewpoints and experiences of many. Central to this fight would be Frances Perkins. Four years into the Great Depression in 1933, the 53 year-old Perkins came to Washington. Reared in Massachusetts and educated at Mount Holyoke College, Perkins had earlier traded a privileged life for the slums of Chicago. There she lived with Jane Addams, a prominent social worker, at Hull House. She vigorously supported social justice causes in Chicago, then in New York City where she became fast friends with progressive Democrats like Franklin D. Roosevelt and U.S. Senator Robert F. Wagner of New York. Perkins served as director of investigations for the New York State Factory Commission, and as chairman of the State Industrial Board. In 1919 Governor Alfred E. Smith appointed her to the office of Industrial Commission of the State of New York. When Franklin D. Roosevelt became governor of New York in 1928, he appointed her industrial commissioner to head New York state’s labor department. The enormously effective Perkins persuaded Governor Roosevelt to aggressively fight the Great Depression in New York by supporting state and regional unemployment insurance and relief projects. In 1930 Governor Roosevelt, highly interested in all aspects of social insurance, signed New York State’s old-age pension legislation. Within a few years about 35 states had passed old-age pension plans in various forms.
Following his election as U.S. president in 1932, President-elect Roosevelt chose Perkins to head the Department of Labor, a department she later recalled to be full of large, cigar-smoking men. Prior to accepting the appointment, Perkins laid out extensive goals. These included unemployment and old-age insurance, and setting minimum wage and maximum hours standards. President-elect Roosevelt, the single national political leader to identify himself with the social insurance cause, agreed that he and Perkins would explore unemployment and old-age insurance as soon as he assumed office. Hence in March 1933 Perkins agreed to become the first woman cabinet member in U.S. history. Concerning social legislation, Perkins was to be the most knowledgeable, dominant voice in the ear of President Roosevelt. For Perkins, known as “Madam Secretary” to her subordinates, once the immediate problems of hunger and poverty had been addressed, the foremost goal was to create a permanent system of social insurance to aid the personal security of the people of the United States.
Wagner-Lewis Bill—An Unemployment Insurance Plan
The distress of the country was great at the time of President Roosevelt’s 1933 inauguration and the unemployment numbers alarming. In response the president speedily began to investigate unemployment and old-age insurance. Of these two forms of social insurance, unemployment insurance seemed the most urgent. The only plan in existence in the United States was the Wisconsin plan adopted in 1932 with which both the President and Perkins were thoroughly familiar. The plan, originally worked out by Professor John R. Commons of the University of Wisconsin, required corporations to set aside unemployment funds to care for their own employees. The amount of money the Wisconsin plan required each employer to set aside was based on a “merit rating.” Each corporation was rated on how successful it was in maintaining employment. Those companies who frequently laid off workers had to put away the most money in an unemployment fund. On the other hand, employers who provided their workers with steady employment had low rates of contributions to their unemployment fund. The plan, therefore, encouraged corporations to keep employment steady.
Another unemployment scheme, proposed in 1932 by the Ohio Commission on Unemployment Insurance but not actually in operation, differed considerably. The Ohio plan proposed that contributions come from both employers and workers. The funds would be pooled in a large single statewide fund rather than having individual corporations maintain their own separate funds. Neither plan envisioned government contributions to the funds.
Some experts believed both plans had serious flaws. One of the most outspoken critics was Abraham Epstein, a key contributor to the creation of early social insurance policies in the states. According to Epstein the Wisconsin plan was doomed because no one business could control overall economic conditions so as to totally control their employment needs. Another criticism of both unemployment plans was that the contributions required of employers would increase the cost of doing business. This would in turn decrease corporate profits and hinder their ability to compete.
In the fall of 1933 a group of liberal businessmen and young New Dealers met in Washington, DC with Paul A. Roushenbush, an early shaper of the Wisconsin plan. His wife, Elizabeth, was the daughter of Supreme Court Justice Louis D. Brandeis. Brandeis had devised a clever plan calling for a payroll tax on employers to be paid into a pooled fund for each state. The amount of the tax could then be deducted from the companies’ federal tax bill. With the tax deduction, the plan would cost employers less. This was the plan that the Roushenbushes shared at the meeting.
Thomas H. Eliot, a lawyer in the Department of Labor, attended the Roushenbushes’ meeting and relayed the plan to Perkins. Perkins, impressed with the creativity of the plan, instructed Roushenbush and Eliot to draw up a bill using this new idea. They realized the bill was rough but hoped it could provide a sounding board from which more complete legislation would evolve. Enthused, President Roosevelt encouraged immediate introduction of the unemployment insurance bill. So in February 1934 the Wagner-Lewis bill went to Congress. Senator Robert F. Wagner introduced it into the Senate and Representative David J. Lewis of Maryland in the House of Representatives.
Dill-Connery, an Old Age Pension Bill
Meanwhile a bill dealing with old-age pensions was working its way through Congress. The issue of old age pensions actually had a much longer history in the United States than unemployment insurance. The American Association for Labor Legislation (AALL) called for development of old-age pension plans in 1906 and states began to explore the issue. Eight states passed voluntary programs in the 1920s. The Great Depression accentuated the plight of the aged. By the early 1930s, 35 states and many private companies enacted various forms of pension plans. Their payment and coverage varied widely among the states. Epstein, who had founded the Association of Old Age Security, believed a nationwide approach was essential. He proposed a plan where the federal government would give states monetary grants equal to a third of the amount each state spent on pensions. For example, if a state spent $300,000 on pensions, the federal government would give the state $100,000. Senator Clarence C. Dill of Washington and Representative William P. Connery, Jr. introduced a bill to Congress in 1932 incorporating these ideas. By 1934 the House of Representatives had passed the Dill-Connery Bill and the Senate Pensions Committee had given it a favorable report.
Spring 1934—Congressional Hearings; Townsend Stirrings
Hearings before Congress on both bills were in full swing in the spring of 1934. Experts testified as to the effectiveness of the measures. President Roosevelt hoped the congressional committees could fashion acceptable programs.
President Roosevelt urged Frances Perkins to discuss the matter with as many groups as possible. She began with the Cabinet, bringing up the matter frequently until other cabinet members became as interested as she was. Perkins also made hundreds of speeches across the country, always stressing social insurance as a way of assisting the unemployed in depression times. Further, she suggested it was a means to aid in preventing further economic depression. With social insurance payments people would continue to have a little money to spend on goods, thus helping businesses. Americans nationwide began to talk and write about social insurance topics.
Francis E. Townsend and Huey P. Long
As Congress was debating the insurance bills a medical doctor in California, Francis E. Townsend, and U.S. Senator Huey P. Long of Louisiana suggested their own versions of social insurance plans. Both rapidly gained widespread popular support.
Dr. Townsend’s medical practice in Long Beach provided such a meager income he had to supplement it with work as a realtor. Sixty-seven years old in 1933 and nearly destitute, Townsend wrote a letter to the editor of the Long Beach Telegram. Townsend described his idea of a two percent national sales tax, the proceeds of which would pay $200 per month to every citizen over 60 years of age who was not employed and not a criminal. Recipients had to spend each monthly payment within thirty days. As a result this expenditure would create jobs for young people. George Murray, editor of the Townsend movement newspaper, recounted that the letter was published in newspapers all over the country. Immediately thousands of letters came to Townsend in support of his plan and Townsend Clubs sprung up all over the nation. Those eligible for the benefits suddenly saw a way out of economic misery. The $200 proposal in 1934 would be roughly equivalent to $3,900 per month in 1998 dollars.
Popularity of the Townsend Plan pressured President Roosevelt to act on the issue of old-age insurance. As concerned as Roosevelt was over the Townsend plan, however, he was even more alarmed over Senator Long and his “Share-Our-Wealth” societies, which enrolled five million members by 1934. Long proposed programs for old-age pensions for those over 60, which included health care, free college education, unemployment insurance, and public relief. He called for a massive redistribution of wealth in the United States, playing on the widely held public sentiment that the wealthy were to blame for the Great Depression. He proposed levying huge taxes on incomes over $1 million and inheritances over $5 million. Revenue from the taxes would pay for such offerings as a $2,500 base income for every family and a $5,000 homestead allotment. Long’s slogans of “every man a king,” “soak the rich,” and “a chicken in every pot” sparked public imagination. Senator Long intended to run for president in 1936 using his proposals as a springboard. Roosevelt feared Long’s strength would steal enough votes from the Democrats to allow the election of a Republican as president in 1936. The pressure of the Townsend Plan and the “Share-Our-Wealth” movement no doubt propelled the formation of Roosevelt’s social security plan.
President Roosevelt’s Plan for Action
As Congress and the public debated and contemplated the various proposals in the spring of 1934, President Roosevelt began to raise concerns. He stressed that the provisions within the bills before Congress needed more study. Committee agreement had not been reached on the Wagner-Lewis bill. Testimony and recommendations varied widely. Moreover, the president began to believe that a social insurance program for the United States should be a single piece of legislation, a package deal rather than piecemeal laws. Yet with millions of Americans following Townsend and Long, President Roosevelt did not have much time for further study.
As hearings proceeded the weather grew hot in Washington, and by June 1934 Congress was exhausted and grumpy. Rather than continuing to push for immediate action, President Roosevelt decided to follow another course. He told Congress he would happily agree to an adjournment as long as they understood his summer and fall plans to pursue social insurance issues. He would have an in-depth study conducted during the next six months, and then he would present a full proposal for social insurance to Congress when they reconvened on the first of January 1935. Congress readily agreed, and President Roosevelt prepared a message of formal notification of his plans.
On June 8, 1934, President Roosevelt sent to Congress a message addressing broad social insurance issues relating his intention to have a plan formulated by year’s end. With the hardships facing many Americans weighing heavy on his mind, Roosevelt stated, “People want some safeguard against misfortunes which cannot be wholly eliminated in this man-made world of ours.” He noted that lessons could be taken from the states, from industries as in Wisconsin, and from many nations of the civilized world. He emphasized that the various forms of social insurance are related, therefore they should be addressed together, not “piecemeal,” with random pieces of legislation. He expressed his desire to safeguard individuals against “several of the great disturbing facets in life,” particularly those associated with “unemployment and old age.” (Roosevelt, The Public Papers and Addresses of Franklin D. Roosevelt, p. 291) Congress promptly accepted the notification and gratefully adjourned.
Committee on Economic Security
On June 29, 1934, President Roosevelt issued Executive Order No. 6767 creating the Committee on Economic Security. The committee would study social insurance issues raised in his June 8 address. He scheduled December 1, 1934, as the date for the committee to report its recommendations to him. The order also created a Citizen Advisory Council to assist the committee. Frances Perkins had recommended the committee consist of cabinet members, an idea President Roosevelt readily agreed to. He immediately realized a program developed by a committee of cabinet members would be under his control. It would not likely get into political disputes or publicity showmanship. President Roosevelt insisted Perkins be the committee’s chairman, saying: “I know you will put your back to it more than anyone else and drive it through.” (Perkins, The Roosevelt I Knew, p. 281). Thus the committee consisted of Chairman Frances Perkins, secretary of labor; Henry Morgenthau, Jr., secretary of the Treasury; Homer Cummings, U.S. attorney general; Henry A. Wallace, secretary of agriculture; and, Harry L. Hopkins, Federal Emergency Relief Administrator.
This cabinet committee turned out to be a good mix. Consideration of the issues came from people with different lines of responsibility and with different approaches. The treasury department examined both the most conservative as well as advanced views for financing such a program. The attorney general made it possible to have legal and constitutional problems analyzed before viewpoints became fixed. Hopkins, the principle relief officer, presented the most pressing needs of the people caught up in the Depression.
An executive director and staff would analyze how the whole social insurance program would work under the direction of a Technical Board. Dr. Edwin E. Witte, chairman of the Department of Economics at the University of Wisconsin, was offered the executive director position on July 24, 1934. He arrived in Washington on July 26, ready to work. Having just graduated from the University of Wisconsin, 21-year old Wilbur J. Cohen also came to Washington to serve as research assistant to Witte. Arthur J. Altmeyer, also from Wisconsin, became the chairman of the Technical Board. Having all come from Wisconsin, Witte, Cohen, and Altmeyer were heavily schooled in Wisconsin’s social insurance ideas. Witte and Altmeyer, along with Perkins, controlled virtually all development of the economic security proposals.
From “Cradle to Grave”
As the Committee on Economic Security began its work, President Roosevelt’s imaginative mind had begun to establish certain basic principles that he hoped would be at the center of the economic security proposal. The President wanted a simple system that everyone could understand. Also President Roosevelt saw no reason why only industrial workers should get benefits. Instead, he believed that every worker and his entire family should be involved. When he expressed these ideas to Perkins she shook her head in dismay. To Perkins, Roosevelt’s suggestion for so broad a system right from the start seemed over ambitious since they had almost no experience in such matters. Roosevelt pressed Perkins, however, saying, “I don’t see why not. I don’t see why not. Cradle to the grave—from the cradle to the grave they ought to be in a social insurance system.” (Perkins, The Roosevelt I Knew, p. 283) In the beginning Roosevelt had to compromise many of his ideas; however, 60 years later, at the end of the twentieth century, social insurance programs looked remarkably like the program he first envisioned in 1934.
Debates of the Committee on Economic Security
The Committee on Economic Security began six months of intense work, resolving conflicting positions on both unemployment insurance and old age pensions. Problems of the unemployment compensation plan took more time than anything else. The basic question was: (1) whether to have a state based program employing the methods suggested in the original Wagner-Lewis plan, or (2) a national plan run and financed by the federal government. The arguments swayed back and forth all summer and into the fall. The president was known to favor the state plan for several reasons: (1) it would allow states to experiment; (2) he feared Congress would not approve a national plan; and, (3) he was unsure of the constitutionality of a national plan. Witte and Altmeyer also favored the state-based plan, while Perkins leaned more to a national system. Observers noted the committee steered clear of such experts as Epstein, who was known to advocate a national plan with federal government funding. His exclusion reflected the overall skepticism they had of the federal government funding an entire national program. Although President Roosevelt had set a December 1 deadline, the debate carried on until late December.
At last Perkins issued an ultimatum, the Committee would meet at her house at eight o’clock on a Christmas week evening. The telephone service was disconnected and she declared they would work all night if need be until they resolved the thorny question. At two in the morning with some reservations, all present agreed to the state based system of the Wagner-Lewis bill. That is, states would set up their own unemployment funds. The federal government would tax employers and those taxes would go to the state funds. Employers could deduct the amount of the tax from their federal tax bill.
The old-age pension plan caused less fuss. The Townsend Clubs were in full swing and the public clamored for an old age pension plan. The major question was not whether to have a plan but how to fund such a plan. Should it be funded out of government general revenues? Or should employers and employees make equal contributions with employees gradually accumulating credits to receive monetary payments in their old age? The second approach won, much to the dismay of liberals who saw the first option as a redistribution of wealth. Redistribution of wealth thinking worked like this: Most all citizens, including the wealthy, paid taxes so some of the wealthy people’s tax money would go to pay old-age pensions. Few wealthy, however, actually worked at a job where they would have contributions taken from their paychecks. Many viewed the employer-employee contribution plan as the poor and middle class worker paying entirely for their own old-age pension.
President Roosevelt looked at the winning oldage pension plan funding from another angle. With payroll taxes funding pensions, the cost to the treasury was nothing. More importantly, since workers had paid their own money into the plan they would always have a moral and legal right to collect the money back in the form of pensions. No one could call it charity or a handout. Besides, Roosevelt observed, if Congress funded the plan out of general government revenues, Congress could always cut back or even eliminate the programs when economic times improved. President Roosevelt forcefully stated, “With those [payroll] taxes in there, no damn politician can ever scrap my social security program.” (Leuchtenburg, William E. Franklin D. Roosevelt and the New Deal: 1932-1940, p. 133) It is notable that a new term, “social security” had now replaced “social insurance.”
Another recommendation coming out of the Committee included federal grants to states that came to be known as public assistance. These grants would pay for support of the already aged population who would not be paying into the social security pension system. The committee recommended grants to the states to help pay benefits to the blind and to dependent children. This recommendation led to the creation of the Aid to Dependent Children program, which formerly had been called mother’s pensions, widow’s pensions, or mother’s aid.
The Committee made no recommendation on the question of national health insurance. Overwhelming opposition was coming from the American Medical Association and the business community, who were fearful of government control of medical procedures and payment to doctors. It was the same reaction of any employer to potential government imposed costs on their business. This indicated to the Committee that a national health insurance proposal might severely damage the chances of passing the entire social security package.
To Congress—The Social Security Bill
On January 17, 1935, President Roosevelt submitted to Congress the work of the Committee on Economic Security. Altmeyer drafted the legislation and Senator Wagner introduced the bill in the Senate. Representatives Lewis and Dobert L. Doughton of North Carolina, chairman of the House Ways and Means Committee, introduced the bill in the House. In a rare procedure, hearings in both chambers were to take place at the same time. The Roosevelt administration had requested simultaneous hearings to hasten passage of the bill, which had become known as the “social security bill.”
Before 1933 the term “social security” was not used in the United States or in other countries. President Franklin D. Roosevelt did not use the term on June 8, 1934, when he notified Congress that he would undertake the task of developing a plan to further the security of individuals and their families. Nor did he use the term later that month when he created the Committee on Economic Security to study economic security and make proposals for legislation. “Social insurance” was the commonly used expression at the time.
In early 1935, during the course of Congressional hearings on the social insurance legislation, several witnesses spoke of “social security.” William Green, president of the American Federation of Labor and Abraham Epstein, theorist, both used the term. The Washington Post referred to the legislation as the “social security bill.” According to Arthur J. Altmeyer, however, a key developer of the bill, Mr. Epstein was probably most responsible for conception of the term.
Mr. Epstein founded the American Association for Old Age Security in the 1920s. He had spent all of his monetary resources trying to keep the association alive. Epstein decided to change the name of the association to one that implied a broader scope but he still wanted to use all his old letterhead stationery. He hit upon the name American Association for Social Security. Epstein could simply cross out “Old Age” and substitute “Social” which is just what he did. Epstein made no attempt to actually define “social security” but it quickly replaced the term “social insurance.” Members of Congress began to refer to the “social security bill.” “Social security” would soon be in everyday usage throughout the United States. Senator Pat Harrison of Mississippi, chairman of the Senate Committee on Finance, shepherded the “social security” bill through the Senate.
So much publicity surrounded the introduction of the bill that Doughton scheduled his House Ways and Means Committee hearings to start a day earlier than Harrison’s Senate committee hearings. In addition to Perkins, Witte and Altmeyer, a battalion of economists, labor leaders, and social workers who had advised the Committee on Economic Security during previous months testified before the House and Senate committees. Perhaps the most famous individual to come before the committee was Dr. Francis Townsend. Townsend, facing a semicircle of hostile senators, testified before the Senate Finance Committee. The angry senators knew that Townsend’s plan sounded like a fixall to the public but in reality would cost so much that it would ultimately bankrupt the government.
At an early hearing before the House Ways and Means Committee, Secretary Morgenthau startled his fellow members of the Committee on Economic Security by arguing against coverage for everyone under the bill. Universal coverage had already been agreed to by the Committee on Economic Security members including Morgenthau. Nevertheless, he now testified that it would be very difficult to collect payroll payments from scattered farm and domestic workers and from the many small businesses employing less than ten people. The Ways and Means Committee agreed. President Roosevelt and his administration felt pressure to compromise on this key issue. Much to their consternation they realized that the bill would not cover everyone.
On April 5, the House Ways and Means Committee reported out to the House of Representatives its version of the social security bill. House Republicans faithfully, reflecting the opposition of business to the bill, lashed out at the legislation. But in the end, fearing defeat at the polls, most Republicans who had resisted every step of the way voted in favor of the bill. On April 19 the House passed the social security bill 371 to 33.
The Senate Finance Committee did not report the bill out of committee until May 17. Debate began in the full Senate on June 14. It took five days for Senator Harrison to move the bill through the Senate. Huey P. Long, in his usual cocky manner, gave notice he would lower the pension age from 65 to 60 and enlarge benefits through his “share the wealth, soak the rich” plan. Long was finally silenced and his $5 billion wealth distribution plan fell to defeat. Senator Bennett Clark of Missouri threw up the next obstacle. He wanted to exempt industries from the plan if they already had private pension plans. The Senate adopted Clark’s amendment and the entire bill passed by a Senate vote of 76 to 6 on June 19.
The House and Senate versions of the bill were in complete agreement except for the Clark amendment. The House refused to go along with exemption of any private companies from the pension plans. The Senate yielded to the House and struck out the Clark amendment. On August 14, 1935, President Roosevelt, surrounded by more than 30 individuals who had worked for passage of the bill, signed the Social Security Act of 1935 into law. President Roosevelt insisted on singling out Perkins as one of those most responsible for the bill’s passage.
The Social Security Act of 1935
President Roosevelt created the Committee on Economic Security on June 29, 1934, and signed the Social Security Act on August 14, 1935. As remarkable and impossible as it seemed, the complex and innovative piece of legislation took only thirteen and a half months to become law.
The explanation for the government’s quick action lies in the fact that the United States was in the middle of an extreme economic depression and in a state of massive social disruption. Bankrupt states could not support even the smallest social programs. Radical quick fixes such as the Townsend Plan and Long’s Share-Our-Wealth societies had gathered public support and put pressure on the government to act. A determined Committee on Economic Security calmly set about to create a practical social insurance program—one that Congress could actually pass. The plan they formulated had the unfailing support of an extremely popular president who remained involved throughout the development process.
The original act had eleven titles or parts. The eleven could be grouped into four categories: (1) public assistance for the elderly who had already retired, dependent children and needy blind; (2) a federal oldage retirement plan; (3) unemployment compensation; and, (4) extension of public health services.
Title I dealt only with the elderly poor who had already retired when the Social Security Act passed. Since they were already retired they would never pay into the Social Security system. Title I provided to the states grants that paid half the cost of old age assistance (OAA) to the already retired elderly. States would pay the other half and determine the amount each retiree would receive monthly.
Title II was the most controversial provision. The Old-Age Benefits, later called Old-Age Insurance (OAI), established how the system of old-age pensions operated. Title VII actually spelled out the taxation of employers and employees to finance OAI. Holding to the notion people should provide for their own old age, business groups, Republican congressmen, and most conservatives were bitterly opposed to Title II. Although Title II was the beginning of the modern Social Security retirement system, only Roosevelt’s shear determination to have the act passed in its entirety kept Title II intact.
Title III, the unemployment compensation plan, was considered the most important provision at the time of passage. Title IX dealt with its financing.
Title IV provided federal grants to states for dependent children. A dependent child was considered any child under the age of sixteen, who had been deprived of parental support or care. Formerly known as mother’s or window’s pensions, it was now Aid to Dependent Children (ADC).
Title V provided grants to states for promoting health of mothers and children, for care of crippled children, protection and care of neglected children, and small grants for retraining persons disabled in industry. Title V and Title X (aid to needy blind) were the only original programs dealing with the disabled.
Title VI provided grants to be made available by Public Health Services to aid states in establishing and maintaining public health services. It also provided funds to the Public Health Service for investigation of disease and for sanitation problems.
Title VII established a three member Social Security Board (SSB) to run all of the programs. It also contained wording to allow for research and study into “related subjects.” It gave the SSB authority to research programs for future needs. This tiny part of the act was invaluable through the years and led to amendments adding Medicare and provisions for the disabled.
Title VIII directed the financing of Title II (OAI). Employers and employees would both pay a one percent tax on wages up to $3,000 yearly. In 1940 the tax was scheduled to increase by half a percentage point until it reached three percent in 1949. So in 1937 a person receiving wages of $3,000 a year would have a total of $30 taken out of their checks for OAI and their employers would match the contribution.
Title IX directed taxation of employers with eight or more employees to finance unemployment compensation. Each state would be responsible for setting up its unemployment system. As unemployment systems were set up employers could deduct the tax levied on them from their federal tax bill. The tax was 1 percent of payroll in 1936, 2 percent for 1937, and 3 percent for 1938.
Title X required the federal government to pay half the cost of benefits to the needy blind, while states would pay the other half.
Title XI defined terms and dealt with administration details.
The Social Security Board and the U.S. Postal Service
Three members for the Social Security Board needed to be chosen immediately to begin the monumental tasks before it. Perkins recommended John G. Winant, a former governor of New Hampshire, who had worked in industrial relations. President Roosevelt, considering Winant reliable and trustworthy, named him chairman. Perkins also recommended Arthur Altmeyer who had been involved from the very start in developing the social security plan. President Roosevelt cautioned that a Southerner must also be on the board. Vincent Miles, an Arkansas lawyer, became the third member.
The SSB threesome initially had no staff, no facilities, and no budgets. Yet they were to operate as an independent agency. A temporary budget came from Harry Hopkins’ Federal Emergency Relief Administration. The SSB had the overwhelmingly complex tasks of providing employers, employees, and the public with information on how to report payroll earnings that would be subject to the Old Age Insurance Tax, what benefits would be available, and how benefits would get to the people.
The first massive undertaking was to register all employers and employees by January 1, 1937. That was when the first payments would be due to begin financing the old-age insurance plan. Certainly, three men could not accomplish this; therefore they contracted with the U.S. Postal Service to distribute applications beginning in November 1936. The post office employees collected all completed applications, assigned Social Security numbers (SSN), created the SSN cards, and then returned these cards with post office efficiency to the applicants. The application forms next arrived at the SSB’s procuring center in Baltimore, Maryland. The agency recorded numbers and established employment records. Over 35 million SSN cards were issued in 1936 and 1937 and to many this new card in their wallets signaled a beginning attempt by the U.S. government at long term planning to lessen the suffering caused by economically difficult times. All this was accomplished in record time well before the age of computers.
Despite staggering obstacles facing the Social Security Board, the challenge of start up had been undertaken with quiet efficiency. The SSB registered and issued millions of SSN cards, plus the programs of OAA gave state governments new funds to deal with their needy elderly. Within two years all 48 states had passed unemployment compensation laws taking advantage of the allowed federal tax offset.
The Early Years—1936, 1937, 1938
Social Security, particularly old-age insurance (OAI), became a major campaign issue in the presidential election of 1936. With paycheck withholdings scheduled to begin in 1937, the Republican candidate, Alfred M. Landon struck out against social security, calling it “a fraud on the workman. The savings it forces on our workers is a cruel hoax” (Schieber and Shoven, The Real Deal: The History and Future of Social Security, p. 53). Although few Americans understood the OAI plan they continued to trust President Roosevelt. Roosevelt won re-election overwhelmingly and support for OAI quickly grew. The economy again experienced a downturn later in 1937, which many attributed to the start of the Social Security tax. Employers and employees each were subject to the one percent tax on wages. Overall, approximately $2 billion came out of the pockets of consumers to begin the OAI fund. Although the first lump sum payments were paid to eligible workers, these were very small.
Other provisions of the Social Security Act also became active in 1936 and 1937. The first state unemployment benefit was paid in Wisconsin. The first public assistance payments from federal grants were made to old-age assistance, aid to dependent children, and the blind. States, for the first time, began actively participating under Title V in maternal and child services.
All the Social Security programs, however, during these early years were more of a demonstration of commitment to a principle rather than providing significant help to people. By the end of June 1937 unemployment benefits paid amounted to only $45 million and retirement benefits $20 million. One year later those figures rose to $436 million and $26 million, respectively. Overall Social Security played only a minor role in recovery for the rest of the decade. Yet by 1939 a pattern of revision and expansion of the programs emerged—a pattern that continued into the twenty-first century.
Congress’ interest in revising the act began when the 1937-38 Advisory Council on Social Security established under Title VII began to study a major flaw in the act.
The act only provided for old-age pensions to workers at age 65 who retired completely from covered employment. No provisions were in existence for pensions of widows or other survivors or for dependents. The Advisory Council recommended the act be amended to include these categories of people.
The House Ways and Means Committee, still under the chairmanship of Robert L. Doughton, took over 2,600 pages of testimony on the proposed amendments. The Amendments that came out of Congress concentrated on the fundamental change of benefits to families.
The Amendments added two new categories of benefits: (1) payments to the spouse and minor children of a retired worker and (2) survivor’s benefits paid to the family in the event of the premature death of the worker. This fundamental change transformed Social Security from economic security plan, focused primarily on the employee, into a broader family based economic security program. The 1939 Amendments also moved up the start of monthly benefit payments from 1942 to 1940.
The establishment of a social security program in the United States was not really a sudden development. Rather it came after decades, roughly from 1883 to 1934, of discussion and debate between individuals in the United States who studied the worldwide social insurance movement. Social insurance programs began appearing in western Europe as early as 1883. The passage of the Social Security Act of 1935 launched the American version of social insurance. Historical forces in the late nineteenth and early twentieth century made 1934 and 1935 the time for action on social security in the United States.
Industrial Revolution and Urbanization
Social insurance movements largely began in response to the industrial revolution and urbanization taking place in western European countries and in the United States. The industrial revolution transformed many working people from self-employed farmers into wage earners working for large industries. In an agricultural society a farmer who owned his own land could at least feed his family in hard times and maintain independence. Increasing numbers of the urban working class, however, rented their living spaces, therefore their income and livelihood depended entirely on wages from their job. If they lost their job due to an injury or during a period of economic downturn and could find no other work, they and their families found themselves in desperate situations. Economic downturns are when money is in short supply and companies lay off workers. These had been occurring in the United States on a relatively regular basis—1857, 1873, 1893, 1914, and 1929. Each downturn or depression was worse than the one before because of the increasing number of individuals who depended solely on wages from jobs. Through the early twentieth century more and more people continued to leave their family farms and small communities to earn their living in the industrial cities. Only 28 percent of the population lived in cities in 1890 but by 1930, 56 percent lived in cities.
Aging presented other unique problems. As people aged, they could not keep up with demands of heavy industrial work and long hours. Elderly persons, no longer supported by extended farm families, would drop into extreme poverty when they left their jobs. With improved healthcare programs and sanitation, however, people began to live longer. Average life spans in America increased by ten years between 1900 and 1930. Therefore the elderly lived longer but often in poverty. In response to the problems created by older, more urban, and industrializing societies, social insurance programs began to appear in various countries.
European Social Insurance Movement
The Social Security program eventually developed in the United States was based on the concept of “social insurance.” By the time America adopted social insurance in 1935, at least 34 European nations had already operated some form of a social insurance program. Social insurance emphasized government-sponsored efforts to provide economic security for its citizens. Social insurance coverage provides for several types of conditions, from injury on the job (workman’s compensation), to disability, illness, old age, and unemployment.
Models of workmen’s compensation and health, old age, and unemployment insurance emerged in Western Europe in the early 1880s. Some of the earliest programs dealt with workmen’s compensation. These programs made payments to a worker injured on the job. Germany, Austria, Hungary, Norway, and Luxembourg all adopted workmen’s compensation programs. Germany also established a national health insurance system in the 1880s as did Austria (1888), Hungary (1891), Luxembourg (1901), Norway (1909), Great Britain (1911), Russia (1912), and the Netherlands (1913). Other countries including Denmark, Sweden, Belgium, France, and Switzerland paid out “sickness benefits.” Old-age insurance then appeared in Germany (1899), Austria (1909), and France (1910). Tax supported old-age pension programs appeared in the 1890s in Denmark, New Zealand, Australia, and France. Unemployment insurance was the slowest social insurance to start up, however, in 1911 Great Britain applied the first national program of unemployment insurance to specific groups of industries. Despite substantial development of social insurance protection in Europe, the matter largely went unaddressed in the United States.
Charities and Volunteers
Although both the U.S. Commissioner of Labor and the New York State Bureau of Labor Statistics conducted detailed studies during the 1890s of the German social insurance plans, the topic was not a subject of serious debate in the United States, and most Americans knew nothing of the European programs. The whole issue seemed unimportant to them. Why, with the need obviously growing in an industrializing United States, was social insurance such a non-issue?
The answer lay in the uniquely American belief in self-reliance and individualism. People in the United States had long held to the notion that they could completely care for themselves and any help coming from government sources seemed a threat to personal liberty. Help for the truly needy had been left to volunteer programs, charities, and mutual aid societies. This charitable help was more in keeping with the American character than government assistance and was typically carried out locally with no coordinated plan. Furthermore, even among the charitable organizations the prevailing attitude was that relief or handouts damaged the work ethic. The public widely feared recipients would prefer relief to work. Most Americans steadfastly resisted any suggestion that they needed help, least of all government help. Dependence on charitable organizations and volunteerism for social needs delayed any movement on social insurance.
AALL and Its Influential Thinkers
In 1906 a handful of university economists, political scientists, and social scientists, mostly middle-class intellectuals, formed the American Association for Labor Legislation (AALL). The creation of the AALL launched the first organized American social insurance movement. Early leaders of AALL were Henry Farman of Yale University, elected president in 1907 and considered its founder, and John R. Commons of the University of Wisconsin elected secretary. Guidance by Farman and Commons insured the early survival of AALL. Commons was responsible for the appointment in 1908 of John B. Andrews as executive secretary. Andrews had been a student of Commons at the University of Wisconsin and had become a leading social economist of the day. The AALL became a “think tank” promoting greater public and government awareness of the need for social insurance. They began calling for unemployment and old age insurance as a way to maintain industrial economies. AALL counted membership of only two hundred, mostly intellectuals, in 1908, but those members spearheaded the movement. They served as consultants for voluntary groups and government agencies. They drafted legislation for numerous city and state governments and lectured tirelessly on the progress of social insurance in the United States. AALL concentrated on issues of industrial accident compensation, industry safety, and unemployment and old-age insurance.
Another early influential member of AALL was Isaac Max Rubinow. As a young man in his twenties, Rubinow immigrated to the United States from Russia in 1893. He earned a medical degree in 1898 and practiced among the poor of New York. He was more interested, however, in government insurance systems and became an outspoken advocate of medical, unemployment, old age, and disability insurance. He believed the federal government should fund such programs. Rubinow had encyclopedic knowledge of European legislation and was convinced that social insurance must come to the United States. He severely criticized America’s volunteer charities as inefficient and felt people suffered needlessly.
States Pass Social Insurance Legislation
AALL members tended to promote practical programs rather than just ideas. Results of AALL’s efforts appeared in 1909 when Wisconsin, Minnesota, and New York passed workmen’s compensation legislation. Franklin D. Roosevelt was a state senator in New York at the time and supported his state’s measure. Forty-three states had passed such laws by 1920.
By the early 1930s various forms of old-age pension plans had been passed in approximately 35 states. As governor of New York in 1930, Roosevelt signed an old age pension plan into law. Roosevelt commented at the time that the problem of insecurity in old age could not be solved without an old-age insurance plan. These plans, however, generally were inadequate and ineffective and many elderly refused to participate. Only about three percent of the aged actually received benefits under the state plans. The average benefit amount was 65¢ a day. Old age pension plans differed greatly from one state to the next. Payments in Montana ran approximately $7.28 per month while Maryland payments were $30 per month.
Reasons for the low participation in state-run plans varied simply because any elderly refused to apply because they were reluctant “to go on welfare.” Very strict eligibility requirements kept many poor seniors from applying. Some states had programs on the books but failed to actually put any program into practice. Furthermore some states allowed counties to opt out of the program.
At a 1931 Conference of State Governors, Governor Roosevelt broke new ground in social insurance matters by speaking favorably about unemployment insurance. By 1932, however, Wisconsin was the first and only state to pass a compulsory or required statewide unemployment insurance program. The Wisconsin plan and its developers strongly influenced the national social security plan in the months and years to follow.
Abraham Epstein Pushes for Nationwide Programs
Another key contributor toward developing social insurance policies in the United States was Abraham Epstein, who was research director of the Pennsylvania Commission on Old Age Pensions from 1918 until 1927. He established the American Association for Old Age Security, which later became the American Association for Social Security in 1933. Epstein wanted to see an old age insurance program established nationwide. Like Rubinow, Epstein believed the federal government should finance the program and strongly supported some form of national health insurance.
Despite increasing passage of social insurance legislation in the states and calls for a national system, only two social programs involving the federal government existed before Roosevelt’s election to the presidency in 1932. Those two programs involved job training and help for needy mothers and children.
Onset of the Great Depression
By the onset of the Great Depression in 1929 social insurance programs had been discussed and developed to some extent in the states. Debates had resulted in a considerable body of literature. Certain individuals emerged as experts in the field and political leaders had at least become aware of social insurance issues.
The Great Depression pushed these issues to the forefront. Social changes that started with industrial revolutions had passed a point of no return. Confidence in traditional sources of economic security such as farming, family, charity, and volunteerism had failed to one degree or another. The depression had cut the total wealth of the nation in half in just three years. Some form of national unemployment insurance and old-age insurance suddenly seemed essential to everyday Americans. Social insurance would prove to be an idea whose time had come.
By the 1932 presidential election, the Democratic Platform contained a call for unemployment and old-age insurance, which probably reflected Roosevelt’s rising influence. Roosevelt had identified himself with the social insurance cause for sometime. After his presidential election victory, he appointed Frances Perkins as secretary of the Department of Labor. Both Roosevelt and Perkins believed they must create a permanent system of personal security for the people of the United States.
By 1933 no fewer than seven key forces over the preceding four to five decades had moved the United States toward a national social insurance policy. Those seven forces were: (1) industrial revolution and urbanization in Europe and the United States; (2) the development of European social insurance plans; (3) the realization that volunteerism by itself was not sufficient to aid the unemployed and elderly; (4) the activities of the AALL; (5) the innovative thinking of economists, social scientists, and certain politicians, including Franklin Roosevelt; (6) social insurance legislation passed within the states; and, (7) the onset of the Great Depression.
As the Depression deepened, the traditional American hope was that charity could find a way to help and that the dip in the economic cycle would soon right itself. Bearing all of these economic, social, and political factors in mind, Roosevelt concluded otherwise. He decided that he must actively set in motion the process for developing an unemployment and oldage insurance program in the United States. Roosevelt was aware that the 1936 presidential election was not far off and there was no guarantee that he would be reelected. Therefore, as Frances Perkins in her book The Roosevelt I Knew(1946) commented, ” … this program, which, in his own mind, was his program, would never be accomplished, or at least not for many years, if it were not put through immediately.”
Hence on June 8, 1934, Roosevelt notified Congress of his intention to develop a social insurance program. On June 29, 1934, he created the Committee on Economic Security to do just that.
Among the general public, three separate groupings had played significant roles during the birth and maturing of social security. Those groupings were the public who benefited from the social security programs, organized business, and organized labor. Among policymakers, the perspectives of advisory councils, academic communities, and politicians all shaped social security.
In the heady times of the 1920s the general public had shown almost no interest in or knowledge of social insurance programs. People believed in taking care of themselves, and the care of the destitute was left up to charities and volunteers. Charitable organizations stressed prevention and education, fearing handouts would destroy the work ethic. These long-held American ideas were challenged by the Great Depression. Volunteerism offered too little to those in desperate economic need, and by 1934 public sentiment for some type of unemployment and old-age insurance was overwhelming. Hundreds of thousands supported the Townsend plan for old-age pensions, and Huey Long’s campaign to “soak the rich.” Much of the general public blamed the very wealthy for the country’s misery. Responding to this groundswell, President Roosevelt’s administration managed to develop and Congress passed the highly complex Social Security Act of 1935, in just thirteen and a half months. Followers of Townsend and Long felt the act was stingy in that it did not do enough for the elderly.
As an organized group, beneficiaries of the social security programs remained relatively quiet until the system matured. As benefits, however, began to make real differences in people’s lives, organizations would spring up if benefits were threatened. At the end of the twentieth century the American Association of Retired Persons (AARP) was an example of a large organized group supporting social security programs. Today’s public is still highly protective of social security.
During the development of social security legislation organized business warned against such notions as unemployment and old age insurance. Business conservatives argued it was un-American and would lead the country to socialism. Manufacturers’ associations were convinced that social security legislation would destroy individual initiative and discourage personal savings and responsibility. Opposition was a natural reaction of employers to government-imposed costs on employment.
On the other hand Marion Folsom, a Kodak executive, testified in favor of the social security bill before the Senate Finance Committee hearings in 1935. After observing how employees who retired from Kodak did not get along very well, he set up one of the first funded plans in industrial America. He planned to blend his company’s plan with the government plan.
After passage of the act various business groups from time to time would raise philosophical questions about social security but they could never mobilize their members to wage an organized campaign against its programs. Gradually businesses began to appreciate that benefits to business were substantially greater than costs. They realized elderly persons had enough money to continue buying in the marketplace. The U.S. Chamber of Commerce actually began running articles praising the tremendous benefits that were building under the system.
Labor unions exist to promote economic and social welfare for their members. Initially the Social Security Act seemed a threat to their reason for existence. If the government was going to take over Americans’ social welfare needs, the unions feared they would no longer have a role to play. Gradually, however, the labor unions began to see the act as opening doors of tremendous opportunity. Unions handled negotiations between employers and employees to establish private pension plans that supplemented the Social Security programs. According to Martha Derthick of the Brookings Institution in Washington, DC, “In building the social security program, organized labor was by far the most important ally of the Social Security Administration” (Schieber and Shoven, The Real Deal: The History and Future of Social Security, p. 129).
Starting with the Committee of Economic Security that developed social security in the summer and fall of 1934, numerous advisory councils operated during the development and the maturing phase of the social security programs. Councils have been periodically appointed since 1937. Despite their often differing origins and diverse members they consistently seemed to be dominated by people committed to the program.
Academics have long taken interest in social security. Social scientists generally conclude the more social security the better. During the 1960s when Presidents John F. Kennedy (served 1961-1963) and Lyndon B. Johnson (served 1963-1969) focused on poverty, social scientists touted social security programs as vital to the elimination of poverty. At the end of the twentieth century, academics, including leading economists, generally agreed that funding of social security must rise. Little consensus, however, existed on where the funding should come from. Historians and political scientists point to the overall effectiveness of Social Security in retirement security, universal coverage, and a public acceptance.
As Congress debated the proposals in 1935, conservative politicians of both parties charged that social security violated the traditional American ideas of self-help and individual responsibility. Conservatives believed the Depression was a temporary problem that would go away, eliminating the need for old age pensions in a few years. Therefore they preferred only old-age public assistance to the truly needy. This approach would have restricted government aid to the smallest possible number of people. Many Southern politicians did not like the fact that blacks could receive benefits. Republicans, reflecting the business communities’ views, cried charges of socialism, dictatorship, and enslavement of workers. They believed fewer jobs would be available for people because employers would not have enough money left to pay wages. Progressive Democrats supported social security measures, however, apparently fearful of rejection at the polls, most Congressmen voted in favor of Social Security. The act passed in the House of Representatives 372 to 33 and in the Senate 77 to 6.
Democrats have come back to the American public time and time again seeking to expand the social security protections against the insecurities of life. The Republicans, in contrast, immediately opposed the program again in the 1936 presidential election. Their active opposition continued for decades, including opposition to Disability Insurance and Medicare.
Policymakers basically agreed on the principal causes of “insecurity” for Americans in the 1930s: unemployment, poverty in old age, loss of the wage earner of the family and, sickness. The original Social Security Act of 1935 sought to protect Americans against the threat of these insecurities. Title I made old-age assistance a right that could be legally enforced. Title II reduced the likelihood that the aged would become impoverished. Title III provided a measure of reassurance during times of unemployment. Other than expanded public health services, health insurance was ignored.
Social Security never intended to relieve the individual of primary responsibility for his or her own well being. Neither did it downplay the role of family members’ duty to one another. Edwin Witte observed that the social insurance system was only meant to provide a floor below which no individual would fall.
Under the original act very little actual help came to Americans of the 1930s. The act was a commitment to the social insurance principle by the United States government. Several decades would pass before that commitment translated to meaningful help.
From passage of the 1939 Amendments to 1950 no changes were made in Social Security, and retirement benefits were very low because the program was still in its infancy. By 1950 the average benefit was only about $26 a month. In fact, the average welfare benefit received under the Title I old-age assistance was higher than the average retirement benefit under Title II. In 1950 only a quarter of those over 65 received retirement payments and only 50 percent of American workers were even covered under the program. In comparison by 1985, 94 percent of those over 65 received Social Security pensions. The 1950 Amendments that began addressing Social Security weaknesses set the stage for continued reform of the system through the second half of the twentieth century.
The 1950 Amendments raised old-age pension benefits for the first time, providing for a gradual raise in the percentage of payroll tax both employers and employees had to pay, and added ten million new workers to its rolls.
Congress passed a 77 percent increase in the oldage pension benefits. Those who retired after the 1950 Amendments took effect received average benefits of between $50 and $55 per month. Future benefit increases could only be enacted by special legislation. Also the first increase in payroll tax, to be levied in 1951, moved the percentage to 1.5 percent and then gradually to 3.25 percent in 1970. The 1950 Amendments also placed the old-age pension program on the road to coverage for all. Ten million more people came under the coverage, including domestic and farm workers, certain self-employed, and various other employees.
In 1956 the Social Security Act was amended to provide benefits to disabled workers aged 50-65 and disabled adult children. Previously only disabled workers over 65 were covered. Disabled adult children included any child of a parent who was no longer a minor (under 18 years of age) but was disabled and could not work. The act also provided funding to help pay for their care. Disabilities range from physical disabilities resulting from illness, injury, or birth defects to mental disabilities. Congress continued to broaden disability benefits until disabled workers of any age could qualify.
In 1965 President Lyndon B. Johnson (served 1963-1969) signed into law health coverage for Social Security beneficiaries aged 65 or older. This landmark program, known as Medicare, enrolled 20 million beneficiaries in its first three years. Medicare consists of two related insurance plans. One is a hospital plan financed through Social Security taxes that pays for such services as in-patient hospital care, nursing home care, and certain health services provided at homes. The plan covers most hospital expenses for up to 90 days for each illness. The patient only has to pay a modest fee at first (the deductible) and a daily co-payment after 60 days. The second plan is a supplementary plan that provides additional benefits if a person chooses to take it. This plan operates outside the Social Security system and is supported by general taxes and the members’ monthly payments.
Supplemental Security Income (SSI)
The original Social Security Act introduced programs for the needy, aged (Title I), and blind (Title X). Disabled individuals were added in 1956. These three programs came to be known as the “adult categories,” and were administered by state and local governments. The state programs were complex and inconsistent, for example, payments varied more than 300 percent from state to state. President Richard M. Nixon (served 1969-1974) identified the need to reform and combine these programs. He did this by signing into law the 1972 Amendments creating the Supplemental Security Income (SSI) program. Under SSI the adult categories were federalized and brought under the administration of the Social Security Administration which allowed for more uniform benefits throughout the United States.
When Ida May Fuller received her first $22.54 benefit check in 1940 she could expect to receive that same amount for the rest of her life. In 1972 President Nixon signed amendments creating the Cost-of-Living Adjustments (COLAs).
COLAs provided for automatic annual cost of living increases for old-age retirement benefits. COLAs were based on increases in consumer prices, which generally matched the rise in inflation. Beneficiaries no longer had to wait for special acts of Congress to receive a benefit increase. No longer did inflation decrease the value of benefits.
Program Changes Since 1980
Legislation in 1983 made numerous changes including taxation of Social Security benefits, coverage of some federal employees, and raising the retirement age eventually to age 67 starting in 2003. Legislation in 1994 created a permanent seven-member Social Security Advisory Board to provide independent advice and legal council for Social Security programs.
In 1999 President Bill Clinton (served 1993-2001) signed work incentive programs to rehabilitate the disabled and assist them in returning to work. President Clinton also signed into law the “Senior Citizens’ Freedom to Work Act of 2000.” This law allowed approximately 900,000 seniors who collected benefits but also worked to keep all their Social Security benefits. Previously, benefits were cut as income from work increased.
Unemployment Insurance in 2000
Just as originally designed in Title III of the Social Security Act of 1935, unemployment insurance partially replaced the income of regularly employed workers who lost their jobs through no fault of their own. In 2000 states administered their own programs but followed national guidelines. The state collects contributions, maintains wage records, takes claims, determines eligibility, and pays benefits. Contributions collected under state laws are then deposited in the Unemployment Insurance Trust Fund in the U.S. Treasury.
While unemployed, a worker receives weekly cash payments according to a benefit formula used by each state. It is based on the amount of the worker’s past earnings. A worker must be ready and willing to accept work. In 2000 the most common length of benefit payments was 26 weeks but additional payments up to 13 or 20 weeks were possible under an Extended Benefits program.
Importance of Social Security in 2000
The Social Security Act of 1935, the essence of Franklin D. Roosevelt’s New Deal programs, endured and evolved through the decades becoming an essential part of modern life. Very few benefits actually went to Americans in the 1930s. Slightly more than 222,000 people received small monthly Social Security benefits in 1940. Perhaps peace of mind that a program was beginning provided the main benefit for Americans in the 1930s. In 2000, however, almost 45 million people received benefits, approximately one in six Americans. Almost one in three of the beneficiaries were not retirees but younger persons who received disability and survivor’s benefits. While only 50 percent of American workers were covered by oldage pension insurance under Title II of the Social Security Act in the 1940s, in 2000 about 98 percent (approximately 150 million) of all workers were covered. For nearly two-thirds of the elderly, Social Security was their major source of income; and, for a third of the elderly, Social Security was their only income. Social Security helped the elderly have financial independence. Only 11 percent of those over 65 lived in poverty in 2000, while a staggering fifty percent lived in poverty in the 1930s and 1940s.
The beginning of the twenty-first century found young people asking if social security will be there for them? In 2000 three major issues were debated. First, some people proposed the retirement age for full benefits be raised even older than age 67. Beginning in 2003 the full retirement age will increase gradually from 65 to 67. Proponents said Americans live longer, healthier lives, therefore are able to work longer. Critics said many people will find it difficult to work beyond the retirement age of 65.
Second, some proposed Social Security taxes should be paid on all income. In 2000 earnings over $72,600 were not subject to Social Security taxes. Therefore, wealthier Americans avoided paying Social Security taxes on some of their income. Critics said if the wealthy pay more in Social Security taxes they would have to receive much higher benefits.
Third, it has been proposed that individual savings accounts and investments for all workers replace part of social security benefits, and critics say that is too risky.
In 2000 Social Security took in more money from taxes than it paid out in benefits. The excess went into trust funds. Benefit payments, however, are expected to exceed taxes paid in 2014. Withdrawals from the trust fund would be needed to make up the difference. The trust fund would run out of money in 2034. At that time if no changes are made Social Security would be able to pay only about three-fourths of benefits owed as incoming taxes would not cover all payments.
Despite the concerns about the future of Social Security, no other government program has touched the lives of so many millions of Americans—the aged, the unemployed, the sick, the needy, mothers, children, and the disabled.
Arthur Joseph Altmeyer (1891-1972)
Altmeyer, born in DePere, Wisconsin, first became interested in social insurance at the age of twenty when he read a pamphlet on the new Wisconsin Worker’s Compensation Act. He entered the University of Wisconsin where he studied under John R. Commons.
Altmeyer became the Chief Statistician of the Wisconsin Industrial Commission in 1920, where he began a monthly publication, the first of its kind, called the Wisconsin Labor Market. It listed data on employment throughout the state. In 1922 he assumed the position of Secretary of the Wisconsin Industrial Commission. Altmeyer was instrumental in the 1932 passage of the Wisconsin Unemployment Reserves and Compensation Act, which provided financial assistance to workers who lost their jobs. It was the first such act to be passed in the United States. Because of the experience he acquired in a state noted for its progressive social legislation, Altmeyer was chosen to serve in President Roosevelt’s Administration. He served in the National Industrial Recovery Administration, the Department of Labor, and on the Committee on Economic Security. The Committee was formed in 1934 to develop a social insurance plan for the United States. Heading up the committee’s Technical Board, Altmeyer, along with Edwin Witte and Frances Perkins, directed the creation of the Social Security Act of 1935. With the act’s passage he was appointed one of the three original Social Security Board (SSB) members. Altmeyer served as a SSB member from 1935 to 1937, chairman from 1937 to 1946, and Social Security Commissioner from 1946 to 1953. He has been called the “father” of Social Security because more than any other single person, he shaped the administration of Social Security.
John B. Andrews (1880-1943)
Andrews was a student of John R. Commons at the University of Wisconsin. Commons appointed Andrews executive secretary in 1908 of the newly formed American Association of Labor Legislation (AALL). The AALL was a “think tank” promoting social insurance such as unemployment and old-age insurance. Andrews held his position with AALL until 1946 and was highly influential in the creation and passage of social security measures in the United States.
Wilbur J. Cohen (1913-1987)
Cohen moved to Washington, DC after graduating from the University of Wisconsin in 1934. He became Research Assistant to Executive Director Witte of President Roosevelt’s cabinet-level Committee on Economic Security and helped craft the original Social Security Act of 1935.
John Rogers Commons (1862-1944)
Commons was an economics and sociology professor at the University of Wisconsin where he became an expert in business, industrial, and labor economics. He drafted Wisconsin’s Unemployment Reserves and Compensation Act, which was enacted in 1932, the first such law in the United States. Commons also strongly influenced the creation of the Social Security Act. John B. Andrews, Edwin Witte, and Arthur Altmeyer, all Commons’ students, became leading developers of social security in the United States.
Robert Lee Doughton (1863-1954)
Doughton, born in North Carolina, served in the House of Representatives from 1911 until 1953. A conservative Democrat, yet a Franklin D. Roosevelt loyalist, he exerted great power as chairman of the House Ways and Means Committee. He presided over hearings for the Social Security bill in 1935.
Thomas Hopkinson Eliot (1907-1991)
Eliot graduated from Harvard Law School in 1932. He served as assistant solicitor in the Legal Division of the Department of Labor under Frances Perkins at the time of the development of the social insurance policies that evolved into the Social Security Act of 1935. Eliot authored the Wagner-Lewis Bill, an unemployment insurance plan, introduced to Congress in February 1934. Later in 1934 Eliot served on the Technical Board of the Committee on Economic Security, which developed the Social Security Act. Eliot was instrumental in crafting the act so that it could withstand constitutional challenges in the Supreme Court. After the act passed, Eliot became counsel to the Social Security Board until 1935.
Abraham Epstein (1877-1942)
Born in Russia, Epstein immigrated to the United States in 1910. He graduated from the University of Pittsburgh in 1917 and worked as research director of the Pennsylvania Commission on Old Age Reviews. He established the American Association for Old Age Security and changed its name to the American Association of Social Security in 1933. That name change is widely attributed to turning the term social insurance into the very American term, social security.
Epstein tirelessly labored to develop old-age insurance plans in the United States. He believed the plans should be financed by the federal government, not employer and employee contributions.
Byron Patton Harrison (1881-1941)
Pat Harrison served in the Senate from 1918 until 1941. A Democrat, Harrison became chairman of the Senate Committee on Finance in 1933. Under Harrison’s leadership the Finance Committee handled many of the New Deal Measures. Harrison is credited with carefully guiding the Social Security Act of 1935 through the Finance Committee and then the full Senate until its passage. Without his effort historians believe Title II of the act would have not made it out of committee.
David J. Lewis (1869-1952)
Lewis was a member of the House of Representatives from Maryland. In 1933 he introduced into Congress the Wagner-Lewis Bill, an unemployment compensation bill that died in Congress. He then introduced the Social Security bill in 1935. Lewis, a former coal miner and self-taught lawyer, was a member of the House Ways and Means Committee. His mastery of the provisions of the bill made him the leading expert of social insurance among committee members.
Huey Pierce Long (1893-1935)
Long, known as “the Kingfish,” was born in Einnfield, Louisiana. Long passed the Louisiana Bar Exam in 1915. Running on the slogan of “Every man a king, but no one wears a crown,” he was elected governor of Louisiana in 1928. Elected to the U.S. Senate in 1930, Long supported Franklin D. Roosevelt in his 1932 presidential bid. Long, however, quickly broke with Roosevelt when the president failed to support his wealth redistribution plan.
In 1934 Long organized the Share-Our-Wealth Society guaranteeing everyone a middle class income of $2,500 and a homestead allowance of $5,000. Long gathered millions of supporters by the end of 1934. He used his support as a springboard to announce his candidacy for president in 1936. Although Long’s chances for success were slim, President Roosevelt feared the votes Long might gain could pull enough support from the Democrats to allow a Republican to win the presidency. Passage of Roosevelt’s Social Security Act was one way to relieve the Long pressure. Long’s life ended abruptly when Dr. Carl Weiss, son-in-law of a ruined political opponent of Long’s, assassinated him in 1935 in the Louisiana State Capital building.
Henry Morgenthau, Jr. (1891-1967)
Morgenthau served as President Franklin D. Roosevelt’s Secretary of Treasury. Appointed on New Years Day, 1934, he served in that position until 1945. In the summer of 1934 President Roosevelt and Secretary of Labor Perkins chose Morgenthau to be a part of the Committee on Economic Security to craft the Social Security Act of 1935. When the bill was before the House Ways and Means Committee, Morgenthau’s testimony led to the deletion of farm and domestic workers from coverage under Social Security.
Franklin Delano Roosevelt (1882-1945)
First as a New York State Senator, then later as governor, Roosevelt was interested in all aspects of social insurance programs. He signed New York’s old-age pension law in 1930 and advocated state and regional unemployment insurance to aggressively fight the Great Depression. Even before his presidential inauguration, he discussed with Francis Perkins, who would become his secretary of labor, the need for long term, nationwide old age and unemployment insurance. In 1934 Roosevelt established the Committee on Economic Security charged with developing a social insurance plan for the United States. He signed the Social Security Act into law in 1935.
Isaac Max Rubinow (1875-1936)
Born in Russia, Rubinow immigrated to the United States in 1893 and graduated from medical school. He worked for a short time in private practice among the poor in New York City but was more interested in government social insurance systems. He returned to school and obtained a Ph.D. in economics from Columbia University. Rubinow became an early and strong advocate for healthcare and social insurance. His encyclopedic knowledge in the field led to published studies on the European system in 1911 and 1913. The 1913 book, Social Insurance, was the most influential early work on the subject. Rubinow advocated government funded social insurance programs in the United States, including unemployment, old age, disability, and medical insurance. His 1934 book, The Quest for Security, further established Rubinow as the foremost expert and theorist in social insurance. President Roosevelt owned a copy and had been reading it as the Committee on Economic Security formed. The committee drafted the administration’s proposals on social security.
Francis Everett Townsend (1867-1960)
Born into a poor farm family in Illinois, Townsend worked various jobs before attending and graduating from the University of Nebraska Medical School. He practiced medicine in Bear Lodge, South Dakota, for approximately twenty years before moving to Long Beach, California in 1920. He worked as a health officer in the Long Beach Health Office for a time but was laid off. Sixty-seven years old with no savings and no prospects, Townsend became outraged at the plight of old people and the public’s lack of concern. He became a self-proclaimed champion of the cause of the elderly. In 1933 he suggested all persons sixty and over should receive $200 a month on the condition they spend it within thirty days. The plan would be financed by a 2 percent national sales tax.
Townsend’s idea rapidly gained followers and Townsend Clubs sprang up all over the nation. When the Townsend Plan was actually introduced into Congress in January 1935, within three months 20 million supporting signatures were collected.
President Roosevelt and Congress viewed the plan as impractical and felt it could bankrupt the country. Its popularity, however, spurred the passage of the Social Security Act by the summer of 1935. Townsend has been referred to as the “stepfather” of the Social Security Act.
Robert F. Wagner (1877-1953)
Elected in 1926 to the U.S. Senate, Wagner was an advocate for all working people and the poor of the United States. When Franklin D. Roosevelt became president in 1933, the Democrat from New York became the Senate’s leader on New Deal legislation. At the urging of President Roosevelt, he introduced the Wagner-Lewis bill, an unemployment insurance proposal, into the Senate in 1933. Although the bill died, it influenced the Social Security Act of 1935, which Wagner also had the honor of introducing in the Senate.
John Gilbert Winant (1889-1947)
Winant became the first head of the new Social Security Board in 1935. He was instrumental in establishing the organization that would carry out the Social Security Act of 1935.
Edwin E. Witte (1887-1960)
Witte was a teacher and expert in the field of economics and social insurance from the University of Wisconsin. In the spirit of the “Wisconsin idea” Witte balanced teaching with public service by holding numerous positions on industrial commissions and research associations for the state of Wisconsin. Witte also served as the Chief of the Wisconsin Legislative Library.
In 1934 Frances Perkins appointed Witte executive director of the Committee on Economic Security. Witte resolved differences between the members of the Committee and the many experts and advisers for over six months. The result was the plan presented to Congress in 1935, which became the Social Security Act of 1935. Following its enactment, Witte served on advisory councils for Social Security.
Notification to Congress, June 8, 1934
On this date President Franklin D. Roosevelt notified Congress of his desire to develop a national social insurance plan in the United States. This speech was reproduced in The Public Papers and Addresses of Franklin D. Roosevelt (Volume Three, p. 291).
Next winter we may well undertake the great task of furthering the security of the citizen and his family through social insurance. This is not an untried experiment. Lessons of experience are available from States, from industries, and from many nations of the civilized world. The various types of social insurance are interrelated; and I think it is difficult to attempt to solve them piecemeal. Hence, I am looking for a sound means which I can recommend to provide at once security against several of the great disturbing factors in life—especially those which relate to unemployment and old age.
Cradle to Grave
Franklin D. Roosevelt’s famous “cradle to grave” statement was made just after the Committee on Economic Security launched its study into the creation of a social insurance program. He made these comments to Frances Perkins when she seemed appalled by the administrative challenges of so large a program. (From Perkins, The Roosevelt I Knew. pp. 282-283).
And what’s more, there is no reason why everybody in the United States should not be covered. I see no reason why every child, from the day he is born, shouldn’t be a member of the social security system. When he begins to grow up, he should know he will have old-age benefits direct from the insurance system to which he will belong all his life. If he is out of work, he gets a benefit, if he is sick or crippled, he gets a benefit.
The system ought to be operated through the post offices. Just simple and natural—nothing elaborate or alarming about it. The rural free delivery carrier ought to bring papers to the door and pick them up after they are filled out. The rural free delivery carrier ought to be the one who picks up the claim of the man who is unemployed, or of the old lady who wants old-age insurance benefits.
And there is no reason why just the industrial workers should get the benefit of this. Everybody ought to be in on it—the farmer and his wife and his family.
I don’t see why not, I don’t see why not. Cradle to the grave—from the cradle to the grave they ought to be in a social insurance system.
Passage of the Social Security Act of 1935
President Roosevelt commenting on August 14, 1935 at the signing of the Social Security Act. The quote comes from the Social Security Administration’s Publication No. 21-059, p. 15.
We can never insure one-hundred percent of the population against one-hundred percent of the hazards and vicissitudes of life. But we have tried to frame a law that will give some measure of protection to the average citizen and to his family against the loss of a job and against poverty-ridden old age. This law, too, represents a cornerstone in a structure, which is being built, but is by no means complete … It is … a law that will take care of human needs and at the same time provide for the United States in economic structure of vastly greater soundness.
United States’ Presidents Speak on Social Security
The following quotes, taken from SSA Publication No. 21-059, represent the attitudes of the Presidents toward the Social Security program.
John F. Kennedy (served 1961-1963):
The Social Security program plays an important part in providing for families, children, and older persons in times of stress. But it cannot remain static. Changes in our population, in our working habits, and in our standard of living require constant revision. (June 30, 1961)
Gerald R. Ford (served 1974-1977):
We must begin by insuring that the Social Security system is beyond challenge. [It is] a vital obligation each generation has to those who have worked hard and contributed to it all their lives. (February 9, 1976)
Jimmy E. Carter (served 1977-1981):
The Social Security program … represents our commitment as a society to the belief that workers should not live in dread that a disability, death, or old age could leave them or their families destitute. (December 20, 1977)
George Bush (served 1989-1993):
To every American out there on Social Security, to every American supporting that system today, and to everyone counting on it when they retire, we made a promise to you, and we are going to keep it. (January 31, 1990)
Bill Clinton (served 1993-2001):
Social Security … reflects some of our deepest values—the duties we owe to our parents, the duties we owe to each other when we’re differently situated in life, the duties we owe to our children and our grandchildren. Indeed, it reflects our determination to move forward across generations and across the income divides in our country, as one America. (February 9, 1998)
Suggested Research Topics
- Explore the life and career of Frances Perkins. Was it unusual for a woman to be a cabinet member at the beginning of the twenty-first century?
- Social Security is an economic compact among generations. Explore the issues surrounding the question, “Will a person in their youth at the turn of the twenty-first century be able to count on Social Security for retirement?”
- In January 1973 the Social Security Administration’s main headquarters building in Washington, D.C., was renamed the Arthur J. Altmeyer Building. Who was Altmeyer and what were his accomplishments?
- Figure a modest monthly budget for living expenses for one person. Would a Social Security monthly check of $700 cover expenses? Is Social Security a supplement to income or sufficient to be a person’s entire income?