Gravity. In 1983, the system was on the brink of collapse. living in cities than on farms. The concept of social insurance is that individuals contribute to a central fund managed by governments, and this fund is then used to provide income to individuals when they become unable to support themselves through their own labors. Economic security is a universal human problem, encompassing the ways in which an individual or a family provides for some assurance of income when an individual is either too old or too disabled to work, when a family breadwinner dies, or when a worker faces involuntary unemployment (in more modern times). National Conference on Social Welfare, Fiftieth Anniversary Edition: The Report of the Committee on Economic Security of 1935 and Other Basic Documents Relating to the Development of the Social Security Act. Earlier installments in this series have discussed the changes as they occurred during the legislative process. (That is, future benefits were lowered for long-time participants so that benefits could be increased immediately. Wisconsin, for instance, enacted the first workers' compensation program in 1911 and the first state unemployment insurance program in 1934.8. Moreover, because the law made no provision for any kind of benefit increases, whatever amount beneficiaries were awarded in their first monthly payment was the benefit they could expect for the rest of their lives. The first Social Security retirement system was put in place in Germany in 1889. In each of the three major policymaking areas (coverage, benefits, and financing), the program has undergone a slow but dramatic evolution. 38 For a detailed analysis of the administrative and policy events surrounding the disability reviews, see Derthick (1990). Thus, the entire bureaucratic apparatus and the basic policy structure of a disability program were all put in place starting in 1954, even though we think of disability benefits as having arrived in 1956. Key provisions of the act, as highlighted in Collins and Erfle (1985), follow: This legislation established the current policy context under which the disability program continues to operate. Although Ackerman may not have filed the first claim processed in the eyes of history, he certainly was first in the art of self-promotion. The match between the pre-1975 benefit increases and the actual rate of inflation was far from perfect. To many, this seemed to defy common sense. When President Franklin D. Roosevelt signed the Social Security Act into law on August 14, 1935, he called it the "cornerstone" of a system of government-provided social protections that would take care of basic human needs while preventing the likelihood of crippling economic depression and mass poverty in the future. The Social Security Act is one of the truly momentous legislative accomplishments in United States history. How have people responded to changes in the retirement earnings test in 2000? The Act also included funds for the States to help destitute elderly, blind, and children. This extreme economic climate of the 1930s saw a proliferation of "pension movements," most of which were dubious and almost certainly unworkable. Svahn, John A., and Mary Ross. FDR's series of federal programs, work projects, financial reforms, and regulations in ⦠a. The insurance principle is the strategy of minimizing an individual's economic risk by contributing to a fund from which benefits can be paid when an insured individual suffers a loss (such as a fire that destroys the home). As the federal government was then on the verge of its first budget surplus in 30 years, the president's proposal was that any surplus in the budget be used first to pay down a portion of the outstanding government debt, thereby indirectly benefiting Social Security in the sense of positioning the government to better meet its future obligations to the program. Report HRD-81-48, March 3. 35 The notch was largely a fiction, constructed by comparing the benefits of persons who retired during the phase-in years with the benefits of those who retired before the decoupling, while simultaneously failing to compare these benefits with those of later retirees (whose benefits were lower than for those in the notch). In the 2009 Trustees Report, the projected 75-year actuarial deficit in the program was estimated at 2 percent of taxable payroll. Raised taxable portion of Social Security benefits from 50 percent to 85 percent. This was the largest single expansion of the federal social insurance system since the original enactment of Medicare in 1965. Washington, DC: Congressional Research Service, Library of Congress (February 19). Made the operations of the Social Security trust funds "off-budget" starting in 1993. Lobbying for old-age pensions was well organized and was supported by a number of prominent civic organizations, such as the Fraternal Order of Eagles. 13 For an explanation of how the final bill came to be known as the Social Security Act, see Research Note #24: Origins of the Term "Social Security," available at http://www.socialsecurity.gov/history/termorigin.html. 45 It is not entirely certain what the situation would be in such an unprecedented circumstance, but it seems that benefits would be automatically reduced to a level commensurate with tax income (Swendiman and Nicola 2010). This is private insurance. (Confederate veterans were not eligible for the federal pensions, although in later years some former Confederate states began paying state pensions to Confederate veterans and their survivors.). There were three particular features of the program before 1950 that were the source of discontent among advocates and beneficiaries: (1) the program had no provision for periodic benefit increases, (2) benefit levels overall were quite low, and (3) the program only covered about half the workers in the economy. The tax rate was initially set at 1 percent on each party, with scheduled increases every 3 years, to an eventual rate of 3 percent each by 1949. Excludes administrative expenses and transfers. Legislative report no. There was also continuing debate over the size and role of the trust fund and the long-range status of the program's finances. a. These European systems, especially the German system, were to a considerable degree models for the American system. Social insurance differs from private insurance in that governments employ elements of social policy beyond strict actuarial principles, with an emphasis on the social adequacy of benefits as well as concerns of strict equity for participants. In 1939 Congress amen⦠The first was a simple bill to raise the limit on the national debt. All 50 states, the District of Columbia, Guam, ⦠The debate over Social Security's financing and policy "reform" began in a highly visible way with the work of the 1994–1996 Social Security Advisory Council. The Great Depression was clearly a catalyst for the Social Security Act of 1935, and some of its provisionsânotably the means-tested programsâwere intended to offer immediate relief to families. FDR liked the new term, and the Social Security Act of 1935 was born, littered with the words "social" and "general welfare." The main debate over the Social Security program involved two issues: (1) the program's financing, in particular, the role of the reserve fund; and (2) the question of whether participation might be made voluntary for certain employers. Annual statistical supplement to the Social Security Bulletin, 2008. During the Clinton administration, the president raised the issue of Social Security reform, principally in rhetorical form. 60 The announcement of the Obama Commission is available at http://www.whitehouse.gov/the-press-office/remarks-president-establishing-national-commission-fiscal-responsibility-and-reform, and the text of the president's executive order is available at http://www.whitehouse.gov/the-press-office/executive-order-national-commission-fiscal-responsibility-and-reform. In preindustrial America, most people lived on the land (and could thus provide their own subsistence, if little else); they were self-employed as farmers, laborers, or craftsmen, and they lived in extended families that provided the main form of economic security for family members who could not work. Moreover, the stress on the program's financing worsened considerably, even after the financing changes of 1977 that improved the long-term position of Social Security. Because the payroll tax in these years was only 1 percent for workers, this would mean a substantial "return" on their payroll taxes. Even so, it was an acknowledgment—at least in principle—of the policy logic of a disability freeze, which would subsequently be enacted 2 years later in the amendments of 1954. Washington, D.C.: Social Security Board, 1937. These members made two arguments: (1) Congress would spend the money in the reserve for purposes of which opponents might not approve, and (2) the idea of government bonds as a repository of genuine economic value was dubious. 11 And sometimes a "Third New Deal" is identified as part of the Roosevelt presidency, beginning in 1937, at which time the New Deal entered a period of retrenchment (Jeffries 1996). Fuller retired in November 1939 at age 65 and received the first-ever monthly Social Security benefit on January 31, 1940. DeWitt, Larry, Daniel Béland, and Edward D. Berkowitz. It is impossible to say which of these 20 claims was processed first. The CES summarized a number of state-level studies on the issue, the mode of which tended to cluster around the 50 percent level (SSA 1937, 149–154). The Social Security Act of 1935 The Social Security Act of 1935 authorized the first federal grants for child welfare services, under what later came to be known as Subpart 1 of Title IV-B of the Social Security Act. On 14 th August 1935, America passed a bill which ended up in the development of social. Among the excluded groups were the self-employed, government employees, persons already age 65, the military, professionals (doctors, lawyers, etc. 2009. The result of these rate freezes was unclear at the time (the Congress focused only on the short-run consequences), but it is probable that the effect of these taxing policies produced the first long-range actuarial deficits in the program (DeWitt 2007). 1997. Sickness, in normal times the main cause of joblessness, was disregarded. He told Frances Perkins, his secretary of labor, "We have to have it. The Social Security Act established two types of provisions for old-age security: (1) Federal aid to the States to enable them to provide cash pensions to their needy aged, and (2) a system of Federal old-age benefits for retired workers. Social insurance: With special reference to American conditions. Established early retirement for men. 39 The Congress and the public had been conditioned by the GAO studies to expect something like a 20 percent cessation rate, based on the idea that this proportion of the beneficiary population was no longer disabled. who sought exemption from payroll taxes for employers who adopted government-approved The Act was aimed at giving older Americans a pension that would provide them with a reasonable standard of living as they aged. 17: The 1977 amendments. Also on the benefit side, there were three provisions increasing benefits: (1) the exempt amount under the RET was increased in an ad hoc adjustment by raising it for 5 years for those retirees aged 65 or older, (2) the duration of marriage requirement for divorced and surviving divorced spouses was cut in half—from 20 years to 10, and (3) the value of delayed retirement credits was increased. Although this was not, strictly speaking, a COLA (but rather an effort to raise the overall level of benefits), it did establish a precedent for the idea that benefits should be raised periodically. And, it was paid for by workers. The Act thus tripled Federal public health expenditures and established a program for the extension of preventive public health services to the entire Nation. Social Security Act of 1935, state and local government employees were excluded from Social Security coverage because of unresolved legal questions about the federal governmentâs authority to impose taxes on state and local governments and their employees. To further soften the impact of this reduction, the Congress devised a 5-year phase-in period, during which time benefits were gradually reduced such that they would be at the proper level for those beneficiaries retiring 5 years from the effective date of the decoupling. The story ran in the local Cleveland papers and was subsequently picked up in other papers around the country. The following items are among the key provisions of the final law, as highlighted in Svahn and Ross (1983). Found insideIn this new conference volume from the National Academy of Social Insurance, experts offer differing views on what changes will, and must, occur to ensure the continuing viability of Social Security, retirement benefits, unemployment ... The legislation advanced the start of monthly benefits from 1942 to 1940; it added dependents benefits; and it replaced the system of one-time death payments with regular monthly survivors benefits. The Social Security Act, signed into law by President Franklin D. Roosevelt in 1935, created Social Security, a federal safety net for elderly, unemployed and disadvantaged Americans. The main stipulation of the original Social Security Act was to pay financial benefits to retirees over age 65 based on lifetime payroll tax contributions. To fully fund the new benefits, tax rates were raised a combined 0.5 percentage points, and a separate disability trust fund was created. SOURCE: Historical Poverty Tables—People, Table 3, Bureau of the Census. The larger and better known programs are: Federal Old-Age, Survivors, and Disability Insurance Unemployment benefits Theme 2: Taxes in U.S. History Lesson 4: The Social Security Act of 1935 Activity 3: How Are Social Security Numbers Assigned? Although the amendments of 1983 restored long-range solvency to the program, by the time the 1988 Trustees Report was released, the program showed signs of financing shortfalls, and when the next annual report became available, it was no longer in long-range close actuarial balance—a condition which persists to the present day. 23 Technically, the benefits are based on the covered worker's primary insurance amount, which is the base benefit before any reductions, such as the reduction in benefits taken before reaching the full retirement age (FRA). Historical statistics of the United States: Colonial times to 1957. Thus, the projections might show a very small deficit over the valuation period, and the system would still be considered to be in actuarial balance. 620) in 1935 for the purpose of providing retirement security for American workers. I have also suggested elsewhere (DeWitt 1997) that there is an even earlier precedent, at least administratively, for the later appearance of Social Security disability benefits—the temporary disability program for civilian war workers, run by the Social Security Board during World War II. The original Social Security Act (1935) and the current version of the Act, as amendedencompass several social welfare and social insurance programs. (Future Social Security Commissioner, Robert Ball, was the executive director of the 1948–1949 Advisory Council and, more than any other single individual, was responsible for the policy recommendations in the council's report.). The amendments of 1983 established the general policy structure of the current Social Security program and, in particular, its current financing structure. The Act was an attempt to limit the dangers old age, poverty, and unemployment in modern American life. The act was established to help the elderly, disabled, or families who have lost a parent or spouse. Shortly after taking office in 2001, President George W. Bush established a commission to study the future of the program and to propose ways in which the system might be changed through the introduction of individual personal accounts, similar to the proposal made by the personal security accounts faction of the 1994–1996 Social Security Advisory Council. There were no other types of benefits and no benefits for dependent family members. The legislation was in fact adopted by what was, in effect, a single vote in the Congress (DeWitt, Béland, and Berkowitz 2008, 14–15). 17 These life expectancy figures have increased only modestly since 1935. Based on Consumer Price Index for Urban Wage Earners and Clerical Workers, nonseasonally adjusted annual averages. Madison: The University of Wisconsin Press, 1966. Special Study #8: Foreign Social Security developments prior to the Social Security Act. 48 Technically, the trust funds are considered to be in "close actuarial balance" if program income over the valuation period is within 95 to 105 percent of program costs. These policies considerably increased the cost of the program in the near term. The original program was designed to pay retirement benefits only at age 65 and only to the covered worker, himself or herself. 1977. 18 A widespread myth has arisen concerning the exclusion of this last group. Social Security Act of 1935 Isidore Sydney Falk. Found insideThey need to be brought to justice, but the price will be high. On the smallest of scales, this is an epic tale of how the dream of a world community can become a reality. the poor during the Depression, Congress passed the 1935 Social Security Act. New York, NY: Henry Holt. Coverage under the program was by occupational category, with most covered workers employed in "commerce and industry." Race and social welfare policy: The Social Security Act of 1935. Ackerman worked one day under Social Security—January 1, 1937. OASIS, Summer (2009): 9–10. Benefits were also increased an additional 13 percent. In 1980, price inflation hit 13.5 percent, while wage growth declined by 4.9 percent—producing a double blow to the program's financing by simultaneously increasing costs as revenues declined. The only problem was that it didn't include domestic workers and farm workers. Congress adjourned, however, before approving a supplemental appropriations bill that included operating funds for the SSB. The proposed Economic Security Act was submitted to Congress on January 17, 1935.13 Hearings were held in the House Ways and Means Committee and the Senate Finance Committee throughout January and February. 15 This was a staggering sum in the 1930s. The law created the Social Security program as well as insurance against unemployment. A stimulating and original survey of the political impact of FDR's image on his successors in the White House.--Foreign Affairs Two social insurance advocates stand out: Isaac Rubinow and Abraham Epstein (Rubinow 1913 and 1934; A. Epstein 1936; P. Epstein 2006).7, In addition to these advocates for a European style social insurance system, there were related developments at the state level in America before 1935. In only 50 years, that portrait changed; in 1930, we were 56 percent urban and only 44 percent rural (Bureau of the Census 1961).1. On the eve of the program's creation, the CES estimated that the majority of seniors in America lived in some form of economic dependency. Typically, pension system costs are lowest in the early days when few participants have retired and much higher later on when more people qualify for benefits. The program's future—along with its history—therefore ought to be of crucial concern to all Americans. Eliminated the retirement earnings test for those at the full retirement age. wages and employers’ payrolls rather than directly from Government funds. As enacted, the Social Security Act created a reserve that was then estimated to reach $47 billion by 1980 (DeWitt 2007).15. The problem of economic security in old age was not as pressing in preindustrial America because life expectancy was short. Title 26 USC (Internal Thus, a person with numerous nonsevere impairments could not qualify as disabled. This commission is tasked with reviewing the entire federal budget—including Social Security and the other "entitlement" programs—and making recommendations to Congress for legislative action. Coverage was initially very limited. Congressional opponents of the reserve believed that the reserve was unworkable. SOCIAL SECURITY ACT. 49 Author's categorizations and calculations using Table 1 of Svahn and Ross (1983, 42). 43 SSA applied the court's ruling to the specific class of litigants involved in the specific case, but refused to consider the court's ruling to overturn the agency's policy. This movement was an attempt to persuade state legislatures to adopt needs-based pensions for the elderly. Unlike many European nations, U.S. social security "insurance" was In 1972, for example, benefits were increased by 20 percent, while inflation had only risen by 1.3 percent from the year before. This quick liberalization was due to the disability program not being as problematic as some had expected. Not coincidentally, the federal budget that year changed from a surplus of over $2 million in 1892 to a deficit of over $61 million in 1893 (the first deficit since the end of the Civil War).4 (For comparison, the Social Security system was about 22 percent of the federal budget in 2008. So, for example, to say that some factor is 5 percent of payroll, is to say that it is equivalent to the amount of money that would result if the total payroll subject to Social Security taxes were multiplied by 5 percent. Social insurance: A program of social reform. Financing has always been an issue. As a result, enactment of Social Security brought into existence complex administrative 8 The Wisconsin unemployment insurance scheme never went into effect, as it was made moot by the adoption of national unemployment insurance in the Social Security Act. Thus, the original program paid two types of one-time, lump-sum benefits in the 1937–1939 period. With Making Sense of Social Security Reform, Daniel Shaviro makes an important contribution to the public understanding of the issues involved in reforming Social Security. 54 See Repeal of the Retirement Earnings Test—Congressional Debates, available at http://www.socialsecurity.gov/history/senateret.html. It was claimed that in the long run the changes were revenue neutral, and thus it is unclear what real change the amendments made in the long-range financing of the system. Perkins, Frances. 14 The full text of President Roosevelt's signing statement is available at http://www.socialsecurity.gov/history/fdrstmts.html#signing. This combination of policy changes was a principal way in which the actuarial balance of the system was to be maintained. The benefit formula also contained the "social weighting" (or progressivity) aspect that persists to this day, in which workers with lower earnings levels receive a proportionately higher benefit, relative to their prior earnings, than workers with high wages. After some considerable difficulty (Light 1985 and 1994), the commission produced a consensus final report that made 16 proposals for both long-term and short-term policy changes. The Social Security Act of 1935 was enacted for the purpose of providing retirement security for American workers. An important part of the Social Security Act was the pension plan that provided income to citizens over sixty-five. The amendments of 1965 (which created the Medicare program) also liberalized the definition of disability by changing the original definition from "of long continued and indefinite duration" to "12 months or longer or expected to result in death." ———. Title 26 USC (Internal (These increases were sometimes coupled with expansions of coverage, which paid part of the costs associated with the benefit increases.) Social Security Act of 1935 B. establishment of Medicare in 1965 C. United States involvement in World War II D. Hill-Burton Act in 1946 A. Social Security Act. Income earned above this amount was not subject to Social Security taxes. 29 The long-range estimation period in 1950 was 40 years. 2007. To offset this tendency, the CES planners proposed using a large reserve fund that could be used to generate investment income thereby meeting a portion of future program costs. We are delighted to publish this classic book as part of our extensive Classic Library collection. Many of the books in our collection have been out of print for decades, and therefore have not been accessible to the general public. Learn. Around the same time, the General Accounting Office (GAO 1978) conducted a very small study of disabled SSI recipients and found that perhaps as many as 24 percent were no longer disabled. Thus, trust fund exhaustion and the attendant benefit "default" were only 4 months away.45.
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