ppa 419 – aging services administration lecture 4a – history of social security

PPA 419 – Aging Services Administration

Lecture 4a – History of Social Security

Pre-Social Security Period

Traditional sources of income security.

Assets Ancient Greeks – Olive oil.

Labor.Feudal system.

Charity.Family.Land.


The rise of formal systems of economic security.

Medieval guilds – mutual aid societies for tradesman that regulated production and provided a range of benefits.Friendly societies – common trades. Evolved into fraternal organizations, then unions. Provided life insurance.

Freemasons, Odd Fellows, Elks, Moose, Eagles.


The English Poor Laws.English Poor Law of 1601 the first systematic codification of the responsibility of the state for the welfare of its citizens.

Taxation to fund relief activities.

Distinguished between deserving and undeserving poor.

Local and community control.

Almhouses.

Tradition that the colonists brought with them to America.


Economic security in America.Colonial poor laws.Increased complexity, diversity, and mobility put strain on colonial poor laws.

Result: more state financing, increasing use of poorhouses and almshouses.Relief made as unpleasant as possible.Outdoor relief increased, but mistrusted.

Old age in colonial America.Struggle to develop adequate systems of retirement.First pension scheme: Thomas Paine, Agrarian Justice.


Civil War pensions: America’s first “Social Security” program.

1862 – Benefits linked to disabilities as a direct consequence of military duty.Widows and orphans also eligible.Service disability link eliminated in 1890.Old age and service became sole qualification in 1906.Often induced young women to marry Civil War veteran’s for the benefit. Last civil war widow to receive civil war pension was in 1999.Military pensions a significant part of the federal budget, but the federal budget at that time not a significant part of the economy. Many veterans not eligible (Confederate veterans, for example).


The company pension.The first formal company pension plan was introduced by the Alfred Dolge company (maker of pianos). Largely a failure because of worker mobility.

Company provided pension plans only covered 2% of workers in early part of 20th century.


Coxey’s Army.During the depression of the 1890’s.

Coxey, an unsuccessful Ohio politician and industrial, called on unemployed from all over the country to join in a march on Washington in 1894.

Tens of thousands marched on Washington, but only 500 made it. Coxey was arrested for walking on the grass of the Capitol building.

Coxey a harbinger of demands for unemployment insurance.


State old-age pensions.Following the outbreak of the Great Depression, poverty among the elderly grew dramatically.

Estimates: over 50 percent did not have enough income to be self-supporting.

State welfare pensions for the elderly were virtually non-existent before 1930.By 1935 30 states had pension plans.

But, only 3% of the elderly were receiving benefits of about an average of $0.65 per day.

– Elderly reluctant to go on “welfare”.– Many states failed to implement programs.– Many states had county option.– 87% of the money under elderly pension programs were spent

in California, New York, and Massachusetts.– Pension laws subject to political vagaries (Huey Long and

black pensioners in June and July).


America changes.The industrial revolution.

The urbanization of America.

The disappearance of the extended family.

A marked increase in life expectancy.

The changes made economic security fragile.


Stock market crash and the Great Depression.

October 24, 1929 stock market crash.In three months, market lost 40% of its value. It took 25 years to return to its pre-crash level.

Unemployment exceeded 25%, 10,000 banks failed, GNP declined from $105 billion to $55 billion. Wages declined by 40%.


Radical calls to action.Every Man a King (Share Our Wealth) – Huey Long.

Confiscate wealth. Guaranteed income of $5,000. Limits on private fortunes, legacies, and incomes. Everyone over 60 would receive a pension.

The Townsend Movement – Francis E. Townsend (unemployed doctor at 66). Townsend Old Age Revolving pension plan.

Pension of $200 month for everyone 60 and older funded by a 2% sales tax.Person must be retired, non-criminal, money must be spent within 30 days.Hung around on the legislative agenda until 1949.


Radical calls to action (contd.).Father Charles E. Coughlin.

Radio show host with 35-40 million listeners.– Enemies included devil, FDR, international bankers, communists, and

labor unions. Described them interchangeably.– Social reforms included inflation of currency and nationalization of all

banks. Anti-Semite and isolationist.

Upton Sinclair (EPIC).EPIC a 12-point program.

– Issuance of scrip currency, creation of state-run bartering enterprises, tax on idle land, and state bond of $300 million. Point 10 provided a pension of $50 a month to all needy persons over 60 who had lived in California for at least three years.

EPIC movement captured Democratic party and Sinclair became the Democratic candidate for Governor in 1934. Received 37% of the vote, another progressive candidate received 13% and the Republican candidate received 48%.


Radical calls to action (contd.).Ham & Eggs (Robert Noble).

Call for state government to issue special script each week to every unemployed Californian 50 and older.

Almost adopted by initiative in 1938. Endorsed by Democratic candidate for Governor, Cuthbert Olson.

Bigelow plan (Reverend Herbert S. Bigelow).Guaranteed income of $50 per month to those over 60 who are unemployed in Ohio. 2% tax on land, increase in income tax. Would have cost more than the existing state budget for two years.


Radical calls to action (contd.).General Welfare Federation of America (Arthur L. Johnson).

Denounced Social Security, called for a pension plan to those over 60. with the simple stipulations that that they not engage in gainful employment, spend their pension for American goods and services, and that they not maintain able-bodied dependents between 30 and 60. Not less than $30 and not more than $60. Financed by gross income tax.


Radical calls for action (contd.).Technocracy.

Technocracy held that all politics and all economic arrangements based on traditional economic theory were antiquated and that the only way to run the country was to let engineers and other technology experts run the country on engineering principles.

– Retirement by 45 due to increased productivity.– Rejected political geography, referring to states by their

coordinates.– Rejected names.

Guess which movement is the only one to still exist today.


Establishment response.Do nothing.

Situation would right itself as it always had.President’s Hoover’s volunteerism.

Advocated voluntary efforts based on his experiences in the post-World War I period.Problem: Volunteerism difficult when total wealth has been cut in half.

Expand welfare.Initial efforts focused on expanding traditional old age pensions, but generally too restrictive and limited.

The New Alternative.Social insurance – work-related contributory system in which workers would provide for their own future economic security through taxes paid while employed.Alternative to radical plans and conservative do-nothing approach.

The Social Insurance Movement

Original concept developed by Otto von Bismarck, Chancellor of Germany in 1899.

Adopted by 34 European countries by 1934.

Basic features.Insurance principle – a group of persons is “insured” against a defined risk.

Social element – The program is shaped in part by broad social objectives, rather than the self-interest of the individuals in the group.

The Social Insurance Movement

Social insurance can cover a number of different conditions including disability, death, unemployment, and old-age.Social insurance attempts to solve the problem of economic security by pooling risk assets from a large social group and providing income to those members of the group whose economic security is threatened.One of the earliest advocates of social insurance was Theodore Roosevelt who succeeded in getting a social insurance plank in the Progressive Party platform in 1912.

The Threshold of Change

In 1934:U.S. in throes of Depression.

Social changes from Industrial Revolution irreversible.

Traditional sources of economic security (assets, labor, family, and charity) had all failed.

Radical proposals for action were springing up like weeds.

A new president and social insurance movement would produce a social revolution.

The Social Security Act – Passage and Development

The Committee on Economic Security appointed by FDR in June 1934. Issued report in November 1934.

Result: Social Security Act of 1935. Controversial, but signed into law on August 14, 1935.


Major provisions of the Act.Old age insurance.Unemployment insurance.Aid to dependent children.Old age assistance.Grants to states to provide medical assistance.

The provisions that affected the elderly included Old Age Insurance and Old Age Assistance.

In the original act, benefits paid only to primary worker.Social insurance provision (Title II) based on contributions.Income assistance provision (Title I) based on need and intended to be temporary.


Social Security Board – 3 members.Provided employers, employees and the public with info on how earnings were to be reported, what benefits were available and how they were to be provided. Replaced in 1946 by the Social Security Administration.

Early work – Social Security Numbers.The first task was to register employers and workers by January 1, 1937, when workers began acquiring credits toward benefits. Contracted with Post Office Department to do this. First established account record was to John David Sweeney, Jr., of New Rochelle, New York.Established 151 field offices by June 30, 1937.

Trust funds.The first Federal Insurance Contributions Act (FICA) taxes were collected, beginning in January 1937 and put in special trust funds. Over the years, $4.5 trillion has been paid in and $4.1 trillion has been paid out. The balance is the surplus.


First payments.First payments between 1937 and 1940 were lump sum. Ernest Ackerman retired one day after the Act went into effect, paid a nickel in, and received 17 cents in retirement benefits.

1939 Amendments.Added dependents benefits and survivors benefits. Turned the program into a family-based program.Also increased benefits amounts and accelerated start of benefits from 1942 to 1940.


Monthly benefits.Payments began in January 1940 and authorized for retired workers, aged wives, and widows, children under 18, and surviving aged parents.

First retirement check issued to Ida May Fuller for $22.54. Started collecting at 65 and lived to 100. Paid in $24.75 and received $22,888.92.


1950 Amendments.Benefits increased making the program more valuable than old age assistance for the first time.

The story of COLAs.1940 to 1950 no increases. 1952 another increase. Doubled benefits.Legislated increases until 1975 when automatic cost of living increases keyed to the CPI kicked in.


Social Security Benefit Increases 1950-2003

EFFECTIVE DATE PERCENT INCREASE

9/509/529/541/59

77.012.513.07.0

1/652/68

7.013.0

1/701/719/723/74*6/746/756/766/776/786/79

15.010.020.07.0*11.08.06.45.96.59.9

6/806/816/8212/8312/8412/8512/8612/8712/8812/89

14.311.27.43.53.53.11.34.24.04.7


12/9012/9112/9212/9312/9412/9512/9612/9712/9812/9912/0012/0112/02 12/03

5.43.73.02.62.82.62.92.11.3

2.5**3.52.61.42.1

* The increase in 3/74 was a special, limited-duration increase. It was effective for only 3/74-5/74. In June 1974 all payment levels reverted to their 2/74 level and the 11% increase was permanently applied on this base.

** The COLA for December 1999 was originally determined as 2.4 percent based on CPIs published by the Bureau of Labor Statistics. Pursuant to Public Law 106-554, however, this COLA is effectively now 2.5 percent.

Social Security Benefit Increases 1950-2003

EFFECTIVE DATE PERCENT INCREASE


Disability.Social Security Amendments of 1954.

Disability insurance program – Disability freeze 1954-1956.

Full disability insurance program 1956 ages 50-64 and disabled adult children. All disabled 1960.

Medicare & other changes.1962, Men’s eligibility reduced to 1962 (women in 1956).

1965, Medicare. Extended health coverage to nearly all Americans 65 and older.


SSI.Supplemental Security Income.

Originally, partially federally funded program of aid to the needy aged, blind, and disabled. Mostly state and local funding and administration. Considerable variation.

SSI nationalized program


1972 & 1977 Amendments.1972.

SSI and COLA changes, minimum retirement benefit, adjustment in male benefit formula to equalize it with women, extension of Medicare to disability recipients, extension to sufferers of chronic renal disease, liberalization of retirement test, and delayed retirement credits.

1977.Addressed financing: raised payroll tax, increased wage base, reduced benefits slightly, decoupled wage adjustment from price adjustment.


1983 Amendments.Taxation of benefits, first coverage of federal employees, increase in retirement age.

The Social Security Act – Passage and DevelopmentSocial Security SSI

Year Benefici

aries Dollars (b) Year

Beneficiaries (c)

Dollars (d)

1937 53,236 (a) $1,278,000 1974 3,996,064 $5,096,813,000

1938 213,670 (a) $10,478,000 1975 4,314,275 $5,716,072,000

1939 174,839 (a) $13,896,000 1980 4,142,017 $7,714,640,000

1940 222,488 $35,000,000 1985 4,138,021 $10,749,938,000

1950 3,477,243 $961,000,000 1990 4,817,127 $16,132,959,000

1960 14,844,589 $11,245,000,000 1991 5,118,470 $17,95,639,000

1970 26,228,629 $31,863,000,000 1992 5,566,189 $21,682,410,000

1980 35,584,955 $120,511,000,000 1993 5,984,330 $23,991,153,000

1990 39,832,125 $247,796,000,000 1994 6,295,786 $25,291,087,000

1995 43,387,259 $332,553,000,000 1995 6,514,134 $27,037,280,000

1996 43,736,836 $347,088,000,000 1996 6,613,718 $28,252,474,000

1997 43,971,086 $361,970,000,000 1997 6,494,985 $28,370,568,000

1998 44,245,731 $374,990,000,000 1998 6,566,069 $29,408,208,000

1999 44,595,624 $385,768,000,000 1999 6,556,634 $30,106,132,000

2000 45,414,794 $407,644,000,000 2000 6,601,686 $30,671,699,000

2001 45,877,506 $431,949,000,000 2001 6,688,489 $32,165,856,000

2002 46,444,317 $453,746,000,000 2002 6,787,857 $33,718,999,00


Independence for SSA.1994: SSA moved from DHHS to independent status by President Clinton.

Legislative changes in 1996 & 1997.Contract with America Advancement Act.

Elimination of drug addiction and alcoholism-based disabilities from Social Security Disability.

Personal Responsibility and Work Opportunity Reconciliation Act of 1996.

Terminated SSI eligibility for most non-citizens. Limited eligibility for children.

Omnibus Consolidated Rescissions and Appropriations Act of 1996.Electronic funds transfers mandatory.

Department of Defense Appropriations Act, 1997.Identification-related documents.

Balanced Budget Act of 1997.Restored SSI eligibility for most non-citizens.


Work incentives.Ticket to Work and Work Incentives Improvement Act of 1999.

Ticket to work for SS disability recipients and incentives to employers to hire them.

Repeal of Retirement Earnings Test.First exempted in 1950, 75 and older, then 72 (1954), 70 in 1977.

Repealed altogether in 2000.


Bush Administration.Appointment of Commission to Strengthen Social Security.

Principles.The President directed the Commission to propose Social Security reform plans that will strengthen Social Security and improve its fiscal sustainability, while meeting several principles:

– Modernization must not change Social Security benefits for retirees or near-retirees.

– The entire Social Security surplus must be dedicated to Social Security only.

– Social Security payroll taxes must not be increased.– Government must not invest Social Security funds in the stock

market.– Modernization must preserve Social Security’s disability and

survivors components.– Modernization must include individually controlled, voluntary

personal retirement accounts, which will augment the Social Security safety net.

ppa 419 – aging services administration lecture 4a – history of social security

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