FDR and the Origins of Social Security
by Bill Hunot, Senior
Public Affairs Specialist
Social Security Administration
Critics of
Franklin Delano Roosevelt have said that 1935 was the optimum time to introduce
social security legislation in the
However, the evidence shows something very
different: FDR, motivated by his great
empathy for less fortunate Americans, strove to establish “cradle-to-the-grave”
social security. Gauging the political
winds and taking into account the prevailing 1930s wisdom about economic
policy, he calculated how much social security would be accepted by the
American people, the economy, and the political power brokers, and got the most
progressive law anyone could reasonably have expected in 1935.
What is Social Security?
The earliest known use of the term “social
security”—albeit as an abstract concept—was by Simón Bolivar, the South
American revolutionary and politician, in an 1819 speech about the proper
functions of government.[2] Common use of the term started sometime after
May 18, 1933, when a leading advocate and expert in social insurance, Abraham
Epstein, changed the name of his organization from the American Association for
Old Age Security to the American Association for Social Security.[3] As used in the
The term “social insurance” refers to government
programs providing benefits to people who have earned the right to those
benefits through their work. Like
private insurance, social insurance spreads the risk of specified hazards among
all participants in the system. Unlike
private insurance, social insurance has social objectives that sometimes
overrule the interests of individual participants. Typically, funding for social insurance comes
from earmarked payroll taxes levied on workers and/or their employers. Politicians and bureaucrats often
euphemistically call these taxes “contributions,” and a term frequently
associated with social insurance is contributory. Social insurance is not means tested. In other words, regardless of their
means—rich, poor, or anywhere in between—workers and their families receive
payments from social insurance if they fulfill a set of pre-defined
requirements.
Today, the Social Security Administration
administers three social insurance programs: retirement insurance (originally
known as old-age insurance), survivor insurance, and disability
insurance—usually collectively called Social Security (with capital letters). Other examples of social insurance in the
Public assistance, as the name implies, refers
to any means-tested government-provided aid to the poor. Entitlement to public assistance depends
solely on need—no work history is required.
Funding comes from general revenues of the state or federal government,
or from a combination of state and federal funds. Depression-era politicians called public
assistance “the dole,” which had the same unnecessarily negative connotations
as “welfare” does today.
Examples of public assistance in the United
States include now-defunct programs called Old-Age Assistance (in some places
called Old-Age Pensions), Aid for Families with Dependent Children, and Aid to
the Permanently-and-Totally Disabled; plus the present-day Supplemental
Security Income, Temporary Assistance for Needy Families, and Medicaid.[4]
The Evolution of Social
Security
When President Franklin Roosevelt took office in
1933, social security was far from a radical—or even novel—concept. Social security-like government programs had
already been around for two millennia.
Philosopher and bureaucrat Confucius, who lived from 551 to 479 BCE, wrote that the Chinese empire of
his time provided “regular allowances” to orphans, widows and widowers, and
“old men without sons.”[5] Imperial
By 1933, at least 39 countries operated social
security programs of some kind for old-age and/or unemployment.
Closer to home, Thomas Paine made the first known
proposal for social security in the
Abe Bortz, official historian of the Social
Security Administration from 1963-1985, saw each of the following programs as
significant steps toward the development of social security in the United
States: pensions for disabled Revolutionary War veterans, 19th
century government health programs for merchant seamen, and post-Civil War
pensions for disabled Union Army veterans and their widows.[9]
After 1880,
In the country household
there is a place for the aged parent or grandparent. The family has a settled abode, and economic
interest reënforces (sic) filial regard in securing to old people proper care
and consideration. So long as any
strength remains, there is useful work about the house or farm which they may
do. Moreover, the cost of maintaining an
aged relative in the country is so small as to seem an insignificant
burden. In the crowded tenement house of
modern cities the situation is very different.[11]
As those societal
changes took their toll, proposals for social security systems began to
appear. FDR was not the first Roosevelt
to propose social security for the United States; during Theodore Roosevelt’s
run for re-election to the presidency as the Progressive Party’s candidate in
1912, he pledged to work “unceasingly” to protect workers against the “hazards
of sickness, irregular employment, and old age through . . . social insurance.”[12] Isaac Rubinow, who helped write the
Progressive Party platform, was a great influence on TR. Rubinow’s 1912 book, Social Insurance, was the standard on the subject until he
published a later work, The Quest for
Security, in 1934.[13]
FDR first demonstrated
his interest in social security during his years in
When
[H]is judgment proved to
be right. He had toned it exactly right
for absorption and approval by the governors.
The fact that every newspaper played it as “Governor Roosevelt Comes Out
for Unemployment Insurance” showed his power to gauge the public reaction. If he had been more emphatic, there would
have been an immediate shying away by all except the already convinced.[15]
Also in that speech, but
hardly noticed,
The Great Depression
While
Despite the country’s economic ills, passing
social security legislation would not be easy.
The
Perhaps most importantly, despite the fact that
most of the rest of the industrialized world accepted social security, social
programs ran contrary to the enduring American principle of rugged
individualism. Private charity was
morally acceptable, as was private insurance, but government social programs
were not. They “destroyed initiative”
and “weakened character.”[25] In fact, many Americans believed that poverty
was usually due to some weakness in the impoverished. Rexford G. Tugwell, a member of FDR’s “brain
trust” of advisors, remembered opposition to social security based on
traditional American values:
The idea that the
federal government had any responsibility at all for the welfare of individual
citizens was still very strange to many people.
. . . Belief in free enterprise
was something close to a religion for the American people. They identified it with the pioneer spirit
and traditional virtues. Rugged
individualism was held responsible for developing the nation into a world
power. In spite of the miseries arising
out of the failures of the free enterprise system, the belief persisted that
every individual could make his own way in the world and if he failed, it was
his own fault.[26]
Mr. Roosevelt Goes to
Somewhere
toward the other end of the political spectrum was Franklin Roosevelt. Make no mistake; FDR was content with a
capitalist economy. He believed in the
American way of life and wanted to preserve it.
Nevertheless, he believed that a capitalist economy should have room for
“adjustments . . . so that the people would not suffer from poverty and
neglect.” According to Frances Perkins,
FDR had great empathy for people:
There was a bond between
Roosevelt and the ordinary men and women of this country. He was profoundly loyal to them. . . .
[A]s he grew older, as he
went through the horror of his illness and crippling, as he met many persons on
many levels, he developed the capacity to associate himself with [them].[27]
In 1933, after
Shortly after his election in November 1932,
Roosevelt and Perkins had a heart-to-heart talk. She told him that he might not want a Labor
Secretary who planned to work to establish nationwide unemployment insurance,
health insurance, and old-age insurance.
FDR appointed her anyway and authorized her to work toward those goals.[31] Because of his great empathy for people, FDR
wanted a comprehensive social security system that protected all of them from
“the cradle to the grave.” He told
Perkins:
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.[32]
Perkins, an icon of American liberalism,
sometimes advised
Arthur Altmeyer supported Perkins’s
recollections about
When FDR became President, there were already
viable pieces of social security legislation in the congressional hoppers: one that
would have started a federal-state system of unemployment insurance, and one
for an old-age assistance program. FDR
did not enthusiastically support either of the bills.[36] Critics viewed this as evidence of
half-hearted support for social security.
However,
On
On
The Committee on Economic
Security
The next day,
In their consideration of each social security
proposal, the members and staff of the CES weighed not just the needs of the
country’s economy, the preferences of FDR, and the difficulty in administering
government programs, but also the anticipated reaction from the Supreme
Court. There was good reason to believe
that the Court might find social security beyond the scope of the
Constitutional role of the federal government:
They had already overturned several New Deal programs.[44] Fortunately, the committee got some guidance
about Constitutional law from an unusual source. Frances Perkins was having a cup of tea at
the home of her friend, Mrs. Stone, when she bumped into the hostess’s husband. Mr. Stone was Harlan F. Stone, the Supreme
Court Justice. Justice Stone made some
small talk about Perkins’s work at the CES, and Perkins mentioned jokingly that
her worries about Stone and his colleagues were making her task more
difficult. According to Perkins, Stone
whispered this advice: “The taxing power of the Federal Government, my dear;
the taxing power is sufficient for everything you want and need.”[45]
The easiest decisions concerned old-age
assistance,[46] because
FDR and the committee believed that the need for an old-age assistance program
would grow smaller as time passed until, eventually, old-age insurance and
other economic reforms would render it unnecessary.[47] They quickly agreed that the states should
administer old-age assistance, and that the federal government should give them
cash grants to do so.
There were several unresolved issues concerning
unemployment. The CES had to decide
whether workers and employers would pay taxes into the unemployment fund, or
just employers. Another issue was
whether the states or federal government would administer unemployment
insurance. Considering that the worker's
recent work history would be the basis for entitlement, it would be difficult
for the states to keep the records necessary to administer a program for an
increasingly mobile workforce.[48] On the other hand, the committee believed
that jointly administered state-federal programs had a better chance of Supreme
Court approval.[49] At that time, the prevailing theory about
unemployment insurance was the "Wisconsin Plan."
Old-age insurance presented the stickiest
problems. There were a number of fundamental
disagreements, including some about the amount of the benefit. Would everybody receive the same amount? Or would benefit amounts relate somehow to
the worker’s pre-retirement earnings?
Another dilemma centered on the proposal of a special computation of
benefits for the early days of the program.
The first beneficiaries to receive old-age insurance benefits would work
just a few years before reaching the traditional retirement age of 65. The taxes they and their employers would pay
to the social security system would justify a very small monthly benefit. However, paying meager benefits might weaken
public support for old-age insurance and would increase the costs of the
old-age assistance program.[51] So, the CES pondered whether it might be better
for the long-term success of social security to pay higher benefits to the
earliest retirees—even if those benefits far exceeded the value of workers’
contributions to the system.
That question linked to an even more contentious
one. Would the old-age insurance program
be “pay-as-you-go,” or “fully funded?”
Pay-as-you-go means that tax collections pay for concurrent benefit
checks. Fully funded means that tax
collections are set aside to pay for future benefits. The CES felt that pay-as-you-go would be
better for the depressed economy because payroll taxes would be immediately
returned to the economy as benefit payments to retirees. On the other hand, because private insurance
companies are required to be fully funded, choosing that option would make
old-age insurance look more like private insurance, less like the dole, and
perhaps more palatable for conservative Americans. The CES actuaries pointed out another
advantage of a fully funded system over one that is pay-as-you-go. The experience of other countries had already
demonstrated that as an old-age insurance system is maturing, the ratio of
taxpayers to beneficiaries declines. As
this is happening in a pay-as-you-go system, the government must increase tax
rates to keep up with benefit payments.
In other words, pay-as-you-go financing saddles future generations with
higher taxes.[52]
The CES chose 65 as the eligibility age for
old-age insurance and old-age assistance with no apparent controversy. There were ample precedents for it. The British and German social insurance
systems, most of the few industrial pensions in the United States, about half
of the state public assistance programs, and the brand-new U.S. Railroad
Retirement Board used it for the minimum age to receive benefits. Although they compiled a few statistics about
age 70, it appears that the CES actuaries did their work based on an assumption
that age 65 would be the eligibility age for both old-age programs. They calculated the ratio of taxpayers to
beneficiaries, projected expenditures and revenues, and declared 65 as a viable
age of eligibility. That was good enough
for Perkins and the other CES members.[53]
On
“I don’t know whether
this is the time for any Federal Legislation on old-age security. Organizations promoting fantastic schemes
have aroused hopes that cannot be fulfilled.
Through their activities they have increased the difficulties of getting
sound legislation, but I hope that in time we may be able to provide security
for the aged.”
Some journalists
interpreted his remarks to mean that FDR was backing away from his commitment
to old-age assistance and old-age insurance.
Perkins felt that the comments merely reflected FDR’s disapproval of
overly generous relief proposals, and his apprehension about the anticipated
difficulties of getting Congressional approval of old-age legislation. Perkins and FDR quickly made public
statements that FDR was still solidly behind the old-age programs and that he
would include them in the administration’s social security bill.[55] Years later, Altmeyer said that FDR
considered unemployment insurance to be his top priority, and that if the
old-age legislation would have delayed unemployment insurance, FDR was willing
to defer the old-age provisions until after unemployment was a fait accompli. Regardless of what he really meant, two days
later FDR told a national conference of mayors that he would indeed include the
old-age programs in the administration’s bill.[56]
As FDR directed, the CES also pondered disability
insurance and national health insurance.
The committee completed a report on health insurance later in 1935, but
the membership agreed that including disability and health insurance in the
first bill they sent to Congress would have endangered the rest of the social
security proposals.[57] Frances Perkins was especially wary about one
particular special interest group:
For the sake of passing
the Social Security bill, we postponed the bill on health insurance, as the
opposition was so great from the American Medical Association (principally)
that it would have killed [the social security proposal] if it had been pressed
at that time.[58]
The Economic Security Act
In early January 1935, the Committee on Economic
Security submitted its report to the President.
This report was the basis for the administration’s proposed legislation,
the Economic Security Act, written by several groups of people from the CES and
the Cabinet departments, and edited and compiled by CES counselor Thomas H.
Eliot.[59]
Title I of the bill authorized payment of
federal grants to the states for old-age assistance programs.
Title III and Title IV outlined old-age
insurance: The “Social Insurance Board”,
to be established in the Labor Department, would administer the program. It would begin paying old-age insurance
benefits in January 1942 to retired workers 65 or older who had paid into the
system for at least 200 weeks. The CES
decided that most Americans would agree that workers who earned higher
salaries—whether more skilled or more industrious—and paid more contributions,
deserved a higher benefit in retirement.[61] Under the plan, workers with 35 years of
participation would receive a maximum benefit of $60 per month.[62] However, workers who began participating in
old-age insurance before 1942 would retire to higher benefits. Monthly benefits for this group would reach
$60 after just 20 years of participation.
By this design, benefits paid in the early days would be too high,
considering the amount of the beneficiaries’ contributions.[63] The program would begin paying these
higher-than-justified checks just before the start of the 1942 political
campaigns. The bill made no extra
provisions for dependents or survivors of participating workers, but it would
allow a retiring worker to voluntarily elect a survivor’s annuity for his
widow, if the retiree reduced his own monthly benefit by an amount that the
Social Insurance Board would determine on an “actuarial” basis.[64]
Most of the money to pay old-age insurance
benefits would come from payroll taxes: an “earnings tax” on employees, and an
“excise tax” on employers. Because of
Justice Stone’s advice about Congress’s taxing power being the key to the law’s
constitutionality, the proposed law used the word tax and avoided using
“contributions,” even though the CES usually used the euphemism at other
times. Every employee in the country who
was under age 60 on January 1, 1937 would participate, except for government
workers, railroad workers, and “non-manual workers” with salaries exceeding
$250 per month. Tax collections would
begin in January 1937—right after the 1936 national elections. From 1937 through 1941, the employee and
employer would each contribute one-half of 1 percent of the employee’s
wages. The tax rate would gradually
increase until it reached 2.5 percent for employees and 2.5 for employers in
1957.[65] In effect, the bill was proposing a hybrid of
pay-as-you-go funding and full funding.
Tax collections would begin five years before the first old-age benefit
checks appeared, establishing an apparent, but tenuous, relationship between
prior contributions and benefits. But
the tax rates would be too low at first; it would take two decades to phase in
a reasonable rate. To make up for the
shortfall, the system would receive, beginning in 1965, a subsidy from general
revenues of the federal government.[66] The CES bill anticipated that the taxes would
be collected by the Post Office: the IRS furnishing adhesive stamps to local
postmasters, and employers purchasing them for distribution to employees. However, the bill gave the IRS great latitude
in devising a method of tax collection.[67]
As FDR preferred, the CES chose a state-federal
system of unemployment insurance.
Hidden in Title IV, which mostly concerned old-age insurance, was the
provision for federal funding of the states’ administrative costs for
unemployment insurance. This provision
specifically addressed the patronage issue, requiring all states to hire
administrators according to merit on a “non-partisan basis” lest they forfeit
their federal funding. Title VI gave the
rest of the unemployment insurance rules.
The states would have a lot of leeway in designing their programs. However, every employer would pay the same
federal tax rate of 3 percent, regardless of the employer’s record, and state
unemployment tax payments would offset federal unemployment tax liabilities.[68] Thus, even if a state decided on a variable
tax rate—assuming that it did not exceed 3 percent—the offset against federal
taxes ensured that all employers would pay the same tax rate anyway. This innovative plan had at least three
advantages. It followed social insurance
principles by spreading the risk evenly among all employers. It would encourage states to enact
unemployment statutes; if they did not, their employers would pay the federal
tax anyway. Most importantly, there was
a better chance that the Supreme Court would rule it constitutional. That last opinion—plus the citation of a
supporting precedent—was given by no less an authority than Supreme Court
Justice Louis D. Brandeis, who designed the state-federal tax-offset plan and
secretly passed it to Frances Perkins through unofficial channels.[69]
A now almost-forgotten part of the Economic
Security Act, Title V, proposed voluntary old-age annuities to supplement
compulsory old-age insurance. All
workers, including those excluded from the compulsory system, would have been
allowed to make periodic voluntary deposits—in effect, loans—to the old-age
fund. Workers who participated would
hold certificates representing amounts they had deposited. At 65, workers would trade in their
certificates for annuities, paying up to a maximum of $100 per annuitant per
month, based on their total deposits plus interest. Title V would have helped workers save for
retirement, and would have helped the government raise revenue for the payment
of old-age benefits.[70]
On
A Long Bumpy Road
Edwin Witte expected Congress to pass the
Economic Security bill easily and quickly.
To his disappointment, the bill faced a long and bumpy road; passage
took seven months of struggle. Assistant
Agriculture Secretary Tugwell said that
Unexpectedly, a member of the CES put two large
potholes in the road. Although Treasury
Secretary Morgenthau had signed the CES report, effectively endorsing the
Economic Security bill, he apparently had changed his mind about—or perhaps had
never understood—two of the most important features of the proposed old-age
insurance system.[75] First, Morgenthau objected to the old-age
insurance system accruing huge unfunded obligations while it paid
higher-than-justified benefits to the early retirees. Furthermore, he objected to promising that a
future Congress would meet those obligations with an injection of general
revenues.[76] To the chagrin of Perkins and the other CES
members, Morgenthau was able to win his case with FDR. FDR now endorsed a higher payroll tax rate
and lower benefits for the first retirees, and he insisted that old-age insurance
receive no funds—ever—from general revenues.
Abraham Epstein and others opposed the
elimination of general revenues from the financing scheme. Since wages are subject to payroll taxes but
investment income is exempt, the poorest wage earners would contribute the
highest percentage of their total incomes to the program. In other words, the employee payroll tax was
regressive. In addition, said Epstein,
employers would meet the cost of their share of the old-age tax by charging
higher prices for the goods and services they produced, thus passing the burden
on to consumers. Since employees and
consumers are the same people, Epstein reasoned, they would ultimately pay both
parts of the old-age insurance payroll tax.[77] Nevertheless, FDR believed, and time has
proven him correct, that workers who contributed to a social insurance
program—one that utilized no general revenues—established a moral right to
their future benefits; a right that future Congresses would be reluctant to
tamper with.[78]
Morgenthau picked his testimony in front of the
This was a blow. The matter had been discussed in the
Committee on Economic Security, and universal coverage had been agreed on from
the outset. One could concede that it
would be difficult for the Treasury to collect these taxes. But the whole administration of the act was
going to be difficult. . . . [I]t would have been just as well to go ahead
with the whole program at that time.[81]
The Townsend Old-Age Revolving
Pension Plan
A surprisingly important part of the old-age
insurance dynamic was a 66-year-old retired medical doctor named Francis
Townsend. Dr. Townsend was just one of
several prominent personalities who proposed government programs to relieve the
suffering of older Americans, but he was the most important. Ten million Americans signed a petition
asking Congress to enact Townsend’s Old-Age Revolving Pension Plan. According to a 1935 survey, 56 percent of
Americans supported Townsend.[82] Frances Perkins remembered that, “In some
districts, the Townsend Plan was the chief political issue, and men supporting
it were elected to Congress.”[83] Townsend called for a national sales tax of 2
percent on all transactions, the proceeds of which would be distributed as $200
monthly payments to each of the 12 million Americans who were 60 or older. There was no means test; Henry Ford and John
D. Rockefeller could have qualified.
Recipients had to retire, could not be “habitual criminals,” and had to
agree to spend all $200 each month.
Townsend believed, and he persuaded his many followers, that the
additional economic activity churned up by his plan would generate enough taxes
to make the plan self-supporting.
Economists scoffed.[84] Congressional leaders knew that the plan
would not work, and knew that they would never enact it. It was too good to be true. The plan’s $200 per month benefit was twice
the average
The House of Representatives
The House Committee on Ways and Means approved
the bill, but not without a fight. The
legislation was attacked from the left and from the right. Epstein, expected to be a supporter,
testified about the bill’s inadequacies.
So did the president of the American Federal of Labor.[89] According to Arthur Altmeyer, neither
Congressional committee enthusiastically supported the old-age insurance parts
of the bill. At one point, prospects
were so dim that the leaders of Ways and Means visited President Roosevelt and
suggested dropping old-age insurance; otherwise, they warned, the bill might
never leave their committee. FDR stuck
to his guns. He told them that he
expected them to pass the bill, and he expected the bill to include old-age
insurance.[90] It turned out that the key to keeping old-age
insurance in the bill was the sacrifice of Title V—the proposal to allow workers
to voluntarily purchase certificates and trade them in later for supplemental
retirement annuities. Not surprisingly,
the politically powerful insurance industry had furiously opposed Title V
because it would have put the
Unemployment insurance had a close shave, too. One of the members of Ways and Means,
inexplicably irate when he discovered that the CES had not exempted
incorporated farms from the unemployment tax, moved to strike the whole
unemployment program from the law.
Sixteen of the 19 members of Ways and Means were present at the time,
and they voted 8 to 8 on his motion.
After a scramble to get proxies from the missing members, unemployment
insurance survived by just one vote.[92] There were no other surprises on
unemployment. As recommended by the CES,
and by Justice Brandeis, Ways and Means agreed that each employer would pay the
same federal tax rate regardless of its employment record, and payments of
state unemployment taxes would offset federal unemployment tax liabilities.
To the disappointment of the CES, Representative Fred
Vinson of
The assignment of the federal government’s administrative
responsibilities to a Social Insurance Board in the Department of Labor was
also a bone of contention. According to
Arthur Altmeyer, many members of Congress disliked the Labor Department because
they thought it was too pro-labor. Many
of them also disliked Frances Perkins.
She was enthusiastically pro-labor.
She was anti-patronage, too.
Altmeyer thought that some members of Congress disliked Perkins because
she was an articulate woman. For
whatever reason, Ways and Means determined that the “Social Security Board”
would become an independent agency, not part of the Department of Labor.
On
The full House debated the merits of the bill from April
11 to April 19. Members proposed fifty
amendments, including proposals to substitute the Townsend Plan for the old-age
assistance and old-age insurance parts of the bill, and a last-ditch effort to
delete the old-age insurance provisions entirely. The House rejected all of the amendments, and
approved the bill 371 to 33 on
The Senate
Over in the Senate, the Finance Committee was
taking its time. Even though Senate
Finance began hearings the day after Ways and Means did, the committee took two
additional months to work through the bill.
Judging by the membership of the committee—15 Democrats, 5 Republicans,
and Progressive Robert La Follette, Jr.—one might have predicted smooth sailing
for the bill. This did not prove to be
the case, mostly because many of the members were very conservative.[94] One of those Conservatives conjured up a
familiar bugaboo during testimony by Secretary Perkins. Senator Thomas P. Gore of
Senator Daniel O. Hastings from
Because the Senate bill was different from the House
version, the bills went to a conference committee to resolve the
discrepancies. The most significant
difference between the two bills was the Clark Amendment, which was included in
the Senate bill. Originally introduced
by Democratic Senator Champ Clark of
A Significantly Diminished Law
During the first week of August, the House and
Senate passed the conference committee’s bill without announcing the vote
count. And, at last, the bill went to
the President for his signature.[100] Gone were the voluntary retirement annuities,
and the voluntary survivor annuity option—even though neither of them would
have cost very much. Congress replaced
the survivor option with a provision for a paltry lump-sum refund of the
deceased worker’s social security taxes plus interest, payable only if the
worker died before receiving benefits that at least equaled his
contributions. Congress also had deleted
language from the bill that would have ensured that African-American applicants
for aid received decent treatment from the states, and insisted that the
state-administered old-age and unemployment programs be sources of patronage
jobs. Most importantly, Congress
eliminated old-age insurance coverage for millions of poor workers who needed
it the most: At first, only about half
of
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 which 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.[102]
Despite
the fact that the Social Security Act had become law, it faced two more
challenges. The first was the 1936
Presidential election. Republican
candidate Alf Landon, the governor of
The
second challenge was in the courts. As
mentioned earlier, the “nine old men”–-as disgruntled New Dealers called
them—overturned many New Deal programs.
In fact, when FDR signed the Social Security Act, the ink was barely dry
on the Court’s decision that the administration’s new social insurance program
for railroad workers was unconstitutional.
This was a bad omen for supporters of social security. However, the frustrated
On
I am very anxious that
in the press of administrative duties the Social Security Board not lose sight
of the necessity of studying ways and means of improving and extending the
provisions of the Social Security Act. I
am particularly anxious that the Board give attention to the development of a
sound plan for liberalizing the old-age insurance system. In the development of such a plan I should
like to have the Board give consideration to the feasibility of extending its
coverage, commencing the payment of old-age insurance annuities at an earlier
date than January 1, 1942, paying larger benefits than now provided in the Act
for those retiring in the earlier years of the system, providing benefits for
aged wives and widows, and providing benefits for young children of insured
persons dying before reaching retirement age.
It is my hope that the Board will be prepared to submit its
recommendation before Congress reconvenes in January.[105]
As
Pursuant to the social objectives of the nascent
social security system, the 1939 Amendments also dramatically increased the
amount of the old-age insurance monthly benefit. First, the law amended the benefit formula to
increase benefits for the earliest retirees.
Second, the amendments changed the starting date for payments from 1942
to 1940, which meant that the first retirees would pay old-age taxes for an
even shorter time. Third, the amendments
increased benefits for lower-paid workers.
Workers who earned more would still receive higher benefits, but
lower-compensated workers would get a much better return on their tax dollars.[107]
The case of Ida May Fuller illustrates the effect of the
1939 Amendments on early benefit payments.
Miss Fuller, a legal secretary from
Other than Congress repeatedly postponing the
scheduled increases in the social security payroll tax, there were no
additional changes to social security until after World War II.
If FDR
did believe that the time was not ripe for additional social security
legislation, he probably was right.
After World War II,
The
President of the
The
best evidence of FDR’s support of social security is the 1939 law amending the
Social Security Act. Had FDR been a
lukewarm supporter of social security, he could have, and would have, rested on
his laurels after his convincing electoral victory in 1936. Instead, he introduced the 1939 Amendments,
which expanded social security into a completely new area, survivor insurance,
and enhanced the social insurance aspects of old-age insurance. Although World War II distracted him,
Notes
[1] A leading
proponent of this theory is Kenneth S. Davis, the author of a multi-volume
biography of FDR. See Kenneth S. Davis,
“The Birth of Social Security,” American
Heritage 30 (April/May 1979): 38-51.
[2] Arthur J.
Altmeyer, The Formative Years of Social
Security (Madison: University of Wisconsin Press, 1966), 3.
[3] Altmeyer,
4.
[4] Max J.
Skidmore, Social Security and Its Enemies
(Boulder, Colorado: Westview, 1999), 25, 37.
See also Edwin E. Witte, Social
Security Perspectives, Essays by Edwin Witte: 1928-1959,
edited by Robert J. Lampman (Madison: University of Wisconsin Press, 1962),
34-37. In 1974, Congress replaced the
state-administered Old-Age Assistance, Aid to the Permanently and Totally
Disabled, and Aid to the Blind with a new federally administered program:
Supplemental Security Income (SSI).
National Commission on Social Security, Social Security in America’s Future: The Final Report of the National
Commission on Social Security (Washington DC: National Commission on Social
Security, 1981), 245.
[5] Graham
Brash, The Sayings of Confucius
(Singapore: Heian International, 1983), 28.
[6] Committee on Economic
Security, “Old-Age Security Staff Report,” January 1935, <http://www.ssa.gov/history/reports/ces/ces2armstaff.html>
(
[7] Committee on Economic Security, “Report of the Committee on
Economic Security,” Table 16, January 1935, <http://www.ssa.gov/history/reports/ces/ces18.html>
(
[8] Thomas Paine, Agrarian
Justice, 1796, <http://www.ssa.gov/history/paine4.html> (
[9] Abe Bortz, “The Historical Development of the Social Security Act,”
<http://www.ssa.gov/bortz.html>
(
[10] Skidmore, 34.
[11] Henry
Rogers Seagar, Social Insurance: A
Program of Social Reform (New York: Macmillan, 1910), 117. Seagar was a professor of political economy
at
[12] Social Security Administration, “Brief History of Social Security,”
n.d., <http://www.ssa.gov/history/briefhistory3.html>
(
[13] Social Security Administration, Social
Security Pioneers, n.d., <http://www.ssa.gov/history/rubinow.html>
(
[14]
[15] Among the
governors who attended was Republican John G. Winant of
[16]
[17] In 1929,
there were only six state old-age assistance programs. In 1932, there were 17. In 1935, there were 30. Joseph P Harris, “Brief in Defense of Old-Age
Benefits as Provided in the Social Security Bill,” 1934, <http://www.ssa.gov/history/reports/ces/ces2armstaff.html>
(5 February 2002), 3. Harris was the
Assistant Executive Director of FDR’s Committee on Economic Security.
[18] Committee on Economic Security, “Report of the Committee on
Economic Security,” Table 14, <http://www.ssa.gov/history/reports/ces/ces18.html>
(
[19] Kennedy, 224.
[20] Kennedy,
51.
[21] Skidmore,
114.
[22] Kennedy,
80-81.
[23] Herbert
Hoover, The Memoirs of Herbert Hoover:
The Cabinet and the Presidency 1920-1933 (New York: Macmillan, 1952), 314.
[24] Perkins,
281. It turns out that Perkins and
others were right to be worried. In
1937, the nascent Social Security Board started collecting payroll taxes for
old-age insurance, which sucked $2 billion out of the economy. At the same time, the government cut its
spending. These actions caused a sharp
economic downturn called the “Roosevelt Recession.”
[25]
[26] Rexford G.
Tugwell, FDR: Architect of an Era
(New York: Macmillan, 1967),
127-130. The brain trust was also known
as the “brains trust.”
[27] Perkins, I Knew, 71.
[28] Social Security Administration, Social
Security Pioneers, n.d., <http://www.ssa.gov/history/fperkins.html>
(
[29] Frances
Perkins, The Roosevelt I Knew (New
York: Viking Press, 1946), 4.
[30] David M.
Kennedy, Freedom from Fear: The American
People in Depression and War, 1929-1945 (New York: Oxford University Press,
1999), 244.
[31] Frances
Perkins, “The Roots of Social Security” (speech delivered at Social Security
Administration headquarters
[32] Perkins, I Knew, 283.
[33] Perkins,
281.
[34] Perkins, I Knew, 283.
[35] Altmeyer,
10.
[36] Senator
Clarence Dill and Representative William P. Connery introduced old-age
assistance legislation in 1932. Senator
Robert Wagner and Representative David Lewis introduced an unemployment
insurance bill in 1934. Congress never
voted on either bill.
[37] Edwin Witte
kept a contemporary diary of the activities of the CES. In 1936, he wrote a long memorandum based on
his diary. After his death, this
memorandum was published as The
Development of the Social Security Act (Madison: University of Wisconsin
Press, 1962). See pages 4-7. See also Arthur M. Schlesinger, Jr., The Coming of the New Deal (Cambridge:
Riverside Press, 1958) 303-304. See also
Perkins, I Knew, 279.
[38] Franklin D. Roosevelt, “Message to Congress Reviewing the Broad
Objectives and Accomplishments of the Administration,” FDR’s Statements on Social Security,
[39] Franklin D. Roosevelt, “Fireside Chat,” FDR’s Statements on Social Security,
[40] Perkins, Roots, 11.
[41] Altmeyer,
7.
[42]
[43] Davis, FDR, 449.
[44] Altmeyer,
15.
[45] Perkins, I Knew, 286. See also Perkins, Roots, 13.
[46] There was
practically no controversy over providing aid to dependent children, aid to the
blind, or the public health provisions of the Social Security Act; so,
deliberations over those parts of the Act are barely mentioned in any of the
accounts of the CES. Altmeyer, 16, 28.
[47] Altmeyer,
26. Today, 33 million over-age-65
Americans receive social insurance payments from SSA’s retirement and survivors
insurance programs. Just two million
over-age-65 Americans receive public assistance from Supplemental Security
Income—the successor program to old-age assistance. Of that two million, 59 percent receive just
partial SSI payments due to their entitlement to Social Security benefits. Social Security Administration, Annual Statistical Supplement to the Social
Security Bulletin (
[48] Perkins, I Knew, 289-291.
[49] Altmeyer,
21.
[50]
Schlesinger, 301. Altmeyer, 24.
[51] Perkins, I Knew, 292.
[52] Perkins, I Knew, 293. Altmeyer, 16.
[53] Committee on Economic
Security, “Old-Age Security Staff Report,” January 1935, <http://www.ssa.gov/history/reports/ces/ces2armstaff.html>
(
[54] Witte, Development, 17-18.
[55]
[56] Altmeyer,
13-14.
[57] Altmeyer,
16, 27, 57n.
[58] Witte, Development, viii.
[59] Thomas H. Eliot,
“The Social Security Bill: 25 Years After,” 1960, <http://www.ssa.gov/history/tomeliotart.html>
(
[60] H.R. 4120,
74th Congress, 1st sess., 1935, 9-10.
[61] Perkins, I Knew, 292.
[62] Workers
with 45 years participation could have received as much as $80 per month.
[63] Perkins, I Knew, 293.
[64] H.R. 4120,
27. The survivor annuity option is a
provision of most present-day pension plans.
[65] H.R. 4120,
15-21.
[66] House Ways
and Means Committee, 898-899.
[67] H.R. 4120,
17-18.
[68] H.R. 4120,
30-36.
[69] The
intermediary was Brandeis’s daughter, Elizabeth Brandeis Raushenbush, the wife
of Paul Raushenbush, chief administrator of
[70] H.R. 4120,
26-28.
[71] Witte, Development, 79-80.
[72] H.R. 4120,
2-8.
[73] Altmeyer,
30-31.
[74] Witte, Perspectives, 7. See also Bortz, 14. Witte, Development,
96. See also Eliot, 2. Witte, Development,
76. See also Altmeyer, 31.
[75] Morgenthau
attended very few CES meetings; instead, he sent Assistant Treasury Secretary
Josephine Roche. Altmeyer, 28.
[76] Altmeyer,
29.
[77]
[78] Altmeyer, 11.
[79] Morgenthau,
although he had prepared an elaborate presentation to support his position on
this issue, chose the hearings in front of Ways and Means for the first time to
raise this objection. Perkins, I Knew, 297.
[80] Kennedy,
269.
[81] Perkins, I Knew, 298.
[82] Social Security
Administration, Research Notes &
Special Studies by the Historian’s Office: Townsend Plan’s Pension Scheme,
December 2001 <http://www.ssa.gov/history/townsendproblems.html> (
[83] Perkins, I Knew, 279.
[84] Among the
scoffers was Edwin Witte, executive director of the CES. Witte called the plan impossible. “Why the Townsend Old Age Revolving Pension
is Impossible,” (Unpublished studies of the Committee on Economic Security),
1935, <http://www.ssa.gov/history/ces/ces2witte6.html>
(
[85] Social
Security Administration, Townsend,
3. See also Witte, Development, 85.
[86] Witte, Development of the Social Security Act,
vi.
[87] Altmeyer,
10.
[88] Perkins, I Knew, 294.
[89] Witte, Development, 83n, 87.
[90] Altmeyer,
34.
[91] Witte, Development, 93-94.
[92] Eliot, 3.
[93] Altmeyer,
35-37.
[94] Witte, Development, 100.
[95] Perkins, I Knew, 299.
[96] Altmeyer,
35, 39.
[97] Altmeyer,
41.
[98] Witte, Development, 106. Altmeyer, 43-44.
[99] Opposition to
the Clark Amendment was rooted in the fundamental differences between pensions
and social insurance programs. For a
complete set of the arguments against the Clark Amendment, see Social Security
Administration, Research & Special
Studies by the Historian’s Office: The
Clark Amendment to the 1935 Social Security Act, August 2001, <http://www.ssa.gov/history/clarkamend.html>
(29 March 2002), 1-4.
[100] Altmeyer,
42.
[101] Altmeyer,
89.
[102] Roosevelt,
“Presidential Statement Signing the Social Security Act,” FDR’s Statements on Social Security,
[103] In response
to the Republican attacks, the Social Security Board immediately circulated 50
million leaflets that it had prepared for later use. Altmeyer, 69.
See also Davis, FDR, 645-647.
[104] Helvering v.
[105] Roosevelt, “A Recommendation for Liberalizing the Old-Age Insurance
System,” FDR’s Statements on Social
Security,
[106] Roosevelt, “Presidential Statement on Signing Some Amendments to
the Social Security Act,” FDR’s
Statements on Social Security,
[107] Schmitter
and Goldwasser, 1-4. Social insurance
experts use “individual equity” to describe the principle that higher-paid
earners, who pay more in social insurance taxes, should get higher
benefits. “Social adequacy” is jargon
for the principle that lower-paid workers and workers with dependents should
get a better earnings replacement rate (the percentage of pre-retirement
earnings that is replaced by monthly social insurance benefits).
[108] Social Security Administration, Research
& Special Studies by the Historian’s Office: Details of Ida May Fuller’s
Payroll Tax Contributions, n.d., <http://www.ssa.gov/history/idapayroll.html>
(
[109] Altmeyer
135-151.
[110] Roosevelt,
“Campaign Address on the Economic Bill of Rights,” FDR’s Statements on Social Security, 34.
[111] Derthick,
Martha, Policy Making for Social Security
(Washington DC: The Brookings Institute, 1979), 295-315.