Building On The Cornerstone
The Social Security system with which we are familiar today is far different from the one created in 1935. In each of the three major policymaking areas , the program has undergone a slow but dramatic evolution.
Coverage was initially very limited. Only slightly more than half the workers in the economy were participants in the program under the 1935 law. Today we could describe Social Security’s coverage as nearly universal, with about 93 percent of all workers participating in the program. Benefits were initially paid only to retirees and only to the individual worker, himself or herself. There were no other types of benefits and no benefits for dependent family members. Benefits were also far from generous. Financing has always been an issue. Although some aspects of this matter were decisively settled in 1935, others have continued to be sources of ongoing policy contention and political debate. Social Security has evolved over the past 75 years principally through the form of a dozen or so major legislative enactments. In broad terms, the period from 1935 through 1972 is the expansionary period for the program, and the period since 1972 has been a period of policy retrenchment.20 The major Social Security legislation is highlighted in Table 2.21
The First Hundred Days
Roosevelts quest to end the Great Depression was just beginning, and would ramp up in what came to be known as The First 100 Days. Roosevelt kicked things off by asking Congress to take the first step toward ending Prohibitionone of the more divisive issues of the 1920sby making it legal once again for Americans to buy beer.
In May, he signed the Tennessee Valley Authority Act into law, creating the TVA and enabling the federal government to build dams along the Tennessee River that controlled flooding and generated inexpensive hydroelectric power for the people in the region.
That same month, Congress passed a bill that paid commodity farmers to leave their fields fallow in order to end agricultural surpluses and boost prices.
Junes National Industrial Recovery Act guaranteed that workers would have the right to unionize and bargain collectively for higher wages and better working conditions it also suspended some antitrust laws and established a federally funded Public Works Administration.
In addition to the Agricultural Adjustment Act, the Tennessee Valley Authority Act and the National Industrial Recovery Act, Roosevelt had won passage of 12 other major laws, including the Glass-Steagall Act and the Home Owners Loan Act, in his first 100 days in office.
Activity One Group C: Debating The Social Security Act
Review the Great Depression time line and the section entitled “The Stock Market Crash and The Great Depression” on The Historical Background and Development of Social Security page, and answer the questions below.
Read the Preamble to the Social Security Act, and answer the questions below.
- How was the Social Security Act going to provide for Americans in a different way than they had previously been provided for?
- Why do you believe the Social Security Act identified these particular groups in its preamble?
- According to the preamble, what problem is the Social Security Act solving? Under this system, what does the federal government do and what do the states do? Why divide their duties in this way?
Read the following text, and work collaboratively with the rest of your group to answer the questions that follow.
- What role is assigned to government in the reading?
- Does the speaker believe that the Social Security Act will help or harm the people of the United States?
- What is the speaker’s reasoning for his or her argument? Pay particular attention to whether their position is based on evidence, logic, or economic and political ideology.
- Do you agree or disagree with the author of your document? Why or why not?
- Do you think contemporaries would have found his or her arguments convincing? Why or Why not?
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Impact Of The Great Depression
The Great Depression left millions of people unemployed and struggling to put food on the table. It struck the elderly especially hard and many states passed legislation to protect their elder citizens.
But most elder-assistance programs of the time were a dismal failure. They were underfunded, poorly run and, in some cases, flat out ignored by officials. Those seniors who received assistance only got about 65 cents a day.
As the depression raged on, government officials and frustrated private citizens alike moved to find ways to help struggling Americans and introduced plans to increase economic security. Most ideas were basically federal or state financed pension plans. Some included all citizens while others included only the elderly.
None of the plans became law however, many had huge followings and initiated spirited dialogue about how to care for the disadvantaged and the elderly.
The 1940s: A Decade Of Start/stop Tax Policy
The decade of the 1940s was in most respects a quiescent period for Social Security policymaking: No new categories of benefits were added, no significant expansions of coverage occurred, the value of benefits was not increased in these early days), and the tax rates were not raised during the entire decade.25 This last nonevent was, however, a significant anomaly.
The 1935 law set a schedule of tax increases beginning in 1939. Tax rates were scheduled to rise four times between 1935 and 1950. These periodic increases were necessary in order to meet President Roosevelt’s demand that the system be self-supporting, and they were the basis on which the actuarial estimates were derived. However, as part of the trade-offs in the amendments of 1939, the first rate increase was cancelled. Then with the coming of World War II, the program’s finances were dramatically altered. With virtually full employment in the wartime economy, more payroll taxes began flowing into the system than the actuaries originally anticipated, and retirement claims dropped significantly. The net result was that the trust fund began running a higher balance than was previously projected. This led to the Congress enacting a series of tax rate “freezes,” which voided the tax schedule in the law. Each time a new tax rate approached, the Congress would void the increase with the expectation that the normal schedule would resume at the next step in the schedulebut this expectation was never met.
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Federal National Mortgage Association
Win McNamee / Getty Images
Much like in the recent financial crisis, the 1930’s economic downturn came on the heels of a housing market bubble that burst. By the start of the Roosevelt administration in 1932, nearly half of all American mortgages were in default, and at its worst in 1933, some 1,000 home loans were foreclosed every day. Building construction came to a halt, putting workers out of their jobs and amplifying the economic fallout. As banks failed by the thousands, even worthy borrowers couldn’t get loans to buy homes.
The Federal National Mortgage Association, also known as Fannie Mae, was established in 1938 when President Roosevelt signed an amendment to the National Housing Act . Fannie Mae’s purpose was to purchase loans from private lenders, freeing up capital so those lenders could fund new loans. Fannie Mae helped fuel the post-WWII housing boom by financing loans for millions of GIs. Today, Fannie Mae and a companion program, Freddie Mac, are publicly held companies that finance millions of home purchases.
Ed Westcott / Department of Energy
Workers at the turn of the 20th century were gaining steam in their efforts to improve working conditions. By the close of World War I, labor unions claimed 5 million members. But management started cracking the whip in the 1920s, using injunctions and restraining orders to stop workers from striking and organizing. Union membership dropped to 3 million, just 300,000 more than pre-WWI numbers.
Social Security Amendments Of 1965
President Lyndon Johnson signed Titles XVIII and XIX of the Social Security Act into law on July 30, 1965.
Title XVIII established Medicare, which provided public health coverage to seniors over the age of 65. The Medicare law consisted of Part A and Part B.
- Part A, which was universal for anyone receiving Social Security benefits, covered hospitalization. The recipient paid a deductible about equal to the first day of hospitalization, and Medicare then paid for the next 60 days. After 60 days, Medicare then paid part of the costs for up to 150 days of the hospitalization after 150 days, Medicare did not pay any costs. Medicare also paid the costs of 20 days in a skilled nursing facility after a hospital stay, and then part of the costs for up to 100 days. Medicare did not cover long-term care in a nursing home. Part A was funded by payroll taxes on current workers and their employers.
- Part B covered physicians’ and outpatient servicesâsuch as doctor visits, X-rays, and laboratory testsâafter the beneficiary met a small yearly deductible. About 25% of the funds for Part B came from premiums paid by beneficiaries, initially with all beneficiaries paying the same premium. The rest of Part B was funded out of the federal government’s general revenues. Enrollment in Part B was voluntary, but most seniors elected coverage.
When the Medicare program began in 1966, 19 million people enrolled. By 2015, 55 million people were enrolled in Part A and 51 million people in Part B.
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History Channel Discovers Segment Of Space Shuttle Challenger
In April, he created the Works Progress Administration to provide jobs for unemployed people. WPA projects werent allowed to compete with private industry, so they focused on building things like post offices, bridges, schools, highways and parks. The WPA also gave work to artists, writers, theater directors and musicians.
In July 1935, the National Labor Relations Act, also known as the Wagner Act, created the National Labor Relations Board to supervise union elections and prevent businesses from treating their workers unfairly. In August, FDR signed the Social Security Act of 1935, which guaranteed pensions to millions of Americans, set up a system of unemployment insurance and stipulated that the federal government would help care for dependent children and the disabled.
In 1936, while campaigning for a second term, FDR told a roaring crowd at Madison Square Garden that The forces of organized money are unanimous in their hate for meand I welcome their hatred.
He went on: I should like to have it said of my first Administration that in it the forces of selfishness and of lust for power met their match, I should like to have it said of my second Administration that in it these forces have met their master.
This FDR had come a long way from his earlier repudiation of class-based politics and was promising a much more aggressive fight against the people who were profiting from the Depression-era troubles of ordinary Americans. He won the election by a landslide.
The New Deal: Part Ii
Introduction: The term New Deal was coined during Franklin Delano Roosevelts 1932 Democratic presidential nomination acceptance speech, when he said, I pledge you, I pledge myself, to a new deal for the American people. Roosevelt summarized the New Deal as a use of the authority of government as an organized form of self-help for all classes and groups and sections of our country.
The publics acceptance of New Deal programs and services initiated by President Roosevelt in his first term was to a large extent a result of the pain and fear caused by the Great Depression. How bad the conditions were is worth remembering, since this is a means of gauging the enormous pressure for significant changes in government policy. One of the worst thing about the 1929 depression was its length of time. Men who had been sturdy and self-respecting workers can take unemployment without flinching for a few weeks, a few months, even if they have to see their families suffer but it is quite different after a year, two years, three years. Among the miserable creatures curled up on park benches, selling apples on the street corner or standing in dreary lines before soup kitchens in 1932 were white men who had been jobless since the end of 1929. This traumatic experience marked millions of people for the rest of their lives, and made them security conscious.
The Social Security Act
Conservative Opponents of the New Deal
The Reverend Charles Edward Couglin
U.S. Senator Huey Long
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Activity Two: Selling The Social Security Act
View each of the following posters, which were produced by the federal government to build support for the Social Security Act among the American public.
- Poster 1: Social Security Poster: More Security for the American Family, Old Man
- Poster 2: Social Security Poster: More Security for the American Family, Mother and Child
- Poster 3: Social Security Poster: More Security for the American Family, Widow
For each image, answer the questions below.
- Why do you think this poster was created for the Social Security Act?
- Who is portrayed in the poster? Which Americans are NOT portrayed in the posters? Why might they be missing from these images?
- In order to “sell” the Social Security Act to the nation, why do you believe the Roosevelt administration chose these images? Identify the ways in which the federal government attempted to “sell” the Social Security Act to the American people. Explain the reasons for your answers.
- How else could the federal government have “sold” the Social Security Act?
This next image was not among those used by the government to promote the Social Security Act. Answer the questions below, which require that you compare this photograph to the three posters you have already worked with in this activity.
The Growth Of Social Security
The Social Security system is, arguably, the most successful government social insurance program in the nation’s history. Its growth and impact has certainly been immense.
In dollar terms, to date, the Social Security program has paid out more than $11 trillion to almost 213 million people .61 The amount of money coming into the Social Security system each year is larger than the gross domestic product of all but the 16 richest nations in the world.62 For most of the past 20 years, the Social Security program has been the largest single function in the federal government’s budget.63 The Social Security system today accounts for almost 5 percent of America’s total gross domestic product.64
|SOURCE: Annual Statistical Supplement to the Social Security Bulletin, 2009 .|
|a. As of the end of the calendar year. Supplement Table 5.A4, pp. 5.255.26.|
|b. Benefit payments only. Excludes administrative expenses and transfers. Supplement Table 4.A1, pp. 4.14.2 and Table 4.A3, pp. 4.54.6.|
|c. Recipients of one-time,lump-sum payments.|
Clearly, Social Security has been central to America’s way of life over the past 75 years. The program’s futurealong with its historytherefore ought to be of crucial concern to all Americans.
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Securities And Exchange Commission
Chip Somodevilla / Getty Images
After World War I, there was an investment boom in the largely unregulated securities markets. An estimated 20 million investors bet their money on securities, looking to get rich and get their piece of what became a $50 billion pie. When the market crashed in October 1929, those investors lost not only their money but also their confidence in the market.
The main goal of the Securities Exchange Act of 1934 was to restore consumer confidence in the securities markets. The law established the Securities and Exchange Commission to regulate and oversee brokerage firms, stock exchanges, and other agents. FDR appointed Joseph P. Kennedy, father of future President John F. Kennedy, as the SEC’s first chairman.
The SEC is still in place, and works to ensure that “all investors, whether large institutions or private individualshave access to certain basic facts about an investment prior to buying it, and so long as they hold it.”
Douglas Sacha / Getty Images
In 1930, 6.6 million Americans were age 65 and older. Retirement was nearly synonymous with poverty. As the Great Depression took hold and unemployment rates soared, President Roosevelt and his allies in Congress recognized the need to establish some kind of safety net program for the elderly and disabled. On August 14, 1935, FDR signed the Social Security Act, creating what has been described as the most effective poverty mitigation program in U.S. history.
Roosevelts Radical Idea: Social Security
Until Franklin D. Roosevelt became president, most social assistance plans in America were dependent on the government, charities and private citizens doling out money to people in need.
Roosevelt, however, borrowed a page from Europes economic security rulebook and took a different approach. He proposed a program in which people contributed to their own future economic security by contributing a portion of their work income through payroll tax deductions.
Basically, the current working generation would pay into the program and finance the retired generations monthly allowance.
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Social Security Act Amendments Of 1939
H.R.6635 Approved, August 10, 1939Public Law 76-379
Expansion of benefits
The original Act provided for only one Federally-administered benefit: Old-Age Insurance, which was paid only to the insured worker. The 1939 Amendments transformed the very nature of the Social Security program. The Amendments created two new benefit categories under §202 of the Act:
- Payments to the spouse and children of a retired worker called dependents or family benefits, a provision of Old-Age Insurance.
- Payments to the family of an insured worker in the event of the premature death of the worker, called survivors benefits, the provision of the then-newly created Survivors Insurance program.
Retirement-aged wives, children under 16 , widowed mothers caring for eligible children, and aged widows were all made eligible for dependents and survivors benefits.
Under select circumstances, parents of deceased insured workers were also made eligible for Survivors Insurance. To be eligible parents must be at least age 65, not entitled to Old-Age Insurance, wholly dependent upon the insured worker for income, and mustn’t have married since the death of the insured worker. Furthermore, the parent are not eligible if the deceased insured worker leaves a widow or unmarried surviving child under the age of 18.
The 1939 Amendments also increased benefit amounts and accelerated the start of monthly benefit payments from 1940 to 1942.
Alternation of financing mechanisms