Social Security, also known as the "Old-Age Trust Fund", is the largest social program in th e United States. It's main fuction is to meet the needs of workers who are retired or disabled. On August 14, 1935 the Social Security Act became a law. There were a lot of problems and revisions in the process, but the program was finally put into effect. The country was in dire need of something, anything to get the U.S. back on it's feet economically and socially. It was a very accepted program because by the time it became a law, the citizens were willing to try anything.
There have been quite a few changes since 1935 and there are sure to be a few more in the nexst decade because of problems not taken into account by the "founding fathers", such as the baby boom generation and the strain it has put on all stages of society.
Prior to 1935, there had been the Great Stock Market Crash, which caused the failure of a great number of banks and the bankruptcy of many people and industries. the employment rate was critically high for a nation. All the aged were working until they physically could no longer do so because they needed the money to live. In that time, when a person retired, he lived with his children and grandchildren because he had no money to support himself. If a son or grandson lost his job, the three generations of a family would become dependent on one man. It was not possibloe to support that many people with one paycheck so the grandparent would stay on the job as long as possible. this led to high unemployment, especially of the young generation of working-age boys. With the unemployment and the bank problem, there was no money circulaiton in the economy, which made it all the harder to support a family. Another reason why the elderly people could not retire is because not all of them had families to take care them and none of them had saved enough money to afford their retirement themselves. "Hardly more than one out of twenty in 1928 drew a pension from private industry, while masses of state and municipal employees knew no such security as that furnished to federal workers."1 America was sick of "sending the old folks over the hill to the poorhouse."2
The original concept of the Social Security system was to develop a way to give financial aid to the aged by having them contribute part of their paychecks to this program, which would be partially funded by the federal government. This was the alternative to having the people of the United States pay taxes to finance their retirements, which would have been impossible, as they were too poor at the time to give up any more money in taxes.
Under the Franklin D. Roosevelt administration, the New Deal legislation tried to stabilize the economy and bring it back on it's feet. This brought the U.S. to the welfare stage that was long-awaited, yet many other countries, such as England, Sweden, Australia, and New Zealand, already had programs in effect to help their dependant and aged. A few states here in the U.S. had already come up with their own old age pension acts. california and Wyoming had acts of this nature by 1929 and by 1930, New York and Massachusetts did also. Within four years, 28 states and 2 territories had enacted their own old age pension acts, 23 of which were mandatory. At this time, the minimum age for receiving a pension was lowered from 70 to 65. a problem here was that 20 states still ahd not taken any action yet and the ones that had the acts could not pay adequate benefits because of the previous financial difficulties in the state and local governments.
The next idea to come along was unemployment insurance. Wisconsin started its program in 1932. The Congressmen, in building their Social Security legislation, used Wisconsin's unemployment insurance legislation as a base. Senator Wagner of New York, and Rep. David Lewis of Maryland introduced this bill to the Senate and House of Representatives. Congressman Dill and Connery, of Washington, meanwhile, introduced another bill at the same time. Both of these bills worked towards the Social Security legislation. The legislation from Wisconsin put forth by Wagner and Lewis, used a merit system where companies took care of their own employees. The corporations built up their own reserves for unemployment. The size of the employer's contribution was determined by its own employment success. If your company had a high unemployment rate, you would have to pay the highest rates. The plan introduced by Dill and Connery was called the Ohio plan. It said that contributions from workers and employers, with none from the government, would be put into a fund.
Unemployment insurance was not the only thing the Social Security legislaiton covered, it also provided a federal-state program of financial assistance to be used for the needy, old, blind, and dependant. The money was raised by a compulsory tax that originally excluded farmers, the elderly, and domestics. There was no medical insurance and it did not protect against accidents or illnesses before retirement. It was a compley bill that needed a lot of time and organization put into it.
While the two bills were under construction in Congress, there were a few outstanding attempts at solving the crisis. One was Dr. Francis Townsend's Movement, in California. He started a corporation known as the Old Age Revolving Pensions, Limited. "...He proposed that the proceeds from a universal two-per-cent transaction tax should pay two hundred dollars monthly to every unemployed person of good character over sixty years of age, this stipend to be wholly spent before the next payday."3 Another was the "Thirty Dollars Every Thursday" plan of Roy Owens, Lawrence and Willis Allen, and Robert Hoble. A lot of them were good ideas but not really practical so they died down after awhile.
The final version os the ?Social Security Act did not set down a basis for personal practices, did not set national standards for the states to follow, and did not operate under a naitonal system: but it did set minimum assistance standards and as for unemployment insurance, each emloyee paid a weekly tax that was offset by his employer.
The Social Security Act worked out very well. It had a stimulaiton effect on the economy and it was finally taking care of the aged, dependant Americans. "In 1950, approximately 20% of elderly households received Social Security benefits. By 1980, that percentage had risen to over 90%."4 It still is in effect today because of a few discrepancies over the years, it is going to have to be radically worked upon if it is to last. During the 1960's benefits were raised without a corresponding tax increase. In 1977, we ran into a financial emergency in which immediate action was needed to prevent bankruptcy. The Social Security Amendment of 1977 took care of this but caused a problem six years later. The Social Security Amendment of 1983 alleviated these problems but what will happen when the Amendment of 1983 fails? When the baby boom generation reaches retirement age, the U.S. will have a lot of trouble on its hands. During that time, almost as many people will be drawing from the fund as will be contributing to it.
The United States government, although slow to take a hint, did a relatively nice job in creating a program to simultaneously create job openings, reduce unemployment, give workers an incentive to work hard, provide pensions to the aged, retired, and disabled employees, and most importantly, pick itself up off the ground after a rough, demeaning period of time and set itself up with a program of long-term positive effects.
ENDNOTES:
1"War and Post War Social Security", American Council on Public Affairs, Washingotn, D.C., 1942, p. 73
2"An American Philosophy of Social Security-Evolution and Issues", J. Douglas Brown, Princeton University Press, Princeton, N.J., 1972, P.7
3"The Great Depression 1929-1942", Dixon Webster, Quadrangle Books Inc., Chicago, 1971, p. 201
4"Social Security: From Crisis to Crisis?", Committee for Economic Development, Library of Congress, New York, N.Y., 1984, p. 5
