Social Security at 80—Under Attack But Alive and Well

Franklin D. Roosevelt signs the Social Security Act.  Labor Secretary Frances Perkins, behind the President was the administration point person for the Act.

On August 14, 1935 President Franklin Delano Roosevelt signed the Social Security Act into law.  It was the crowning achievement of the New Deal.   It has rightly been acclaimed “the most successful American anti-poverty program in history.”  Once considered so popular that proposals to alter or abolish it were widely considered the third rail of American politics—too dangerous to seriously advance.  But that was before years of a carefully managed drum beat of hysteria that the system was somehow running out of money which has convinced many folks, despite all of the evidence to the contrary, that they would never live to collect what they have been paying in for their entire working lives.

That kind of talk was the nose of the camel under the tent that allowed retirement ages to creep upward and talk of limiting or reducing future benefits become fashionable in some quarters.  Proposals to privatize all or part of the system in whole or in part seemed to be gain steam for a while.  These would allow younger workers to take all or part of their Social Security contributions and invest them in private IRA like accounts. 

The wind was kicked out of that fantasy in the stock market collapse of 2008, which understandably raised doubts in the safety of investment in the volatile Stock Market.

But some bad ideas just won’t stay dead.  Republican Vice Presidential Candidate in 2012 Paul Ryan refloated various alleged reforms, including the privatization scheme.  That was good politics in the short run as Tea Party activists were threatening to sit out the election because Mitt Romney was allegedly to moderate or perhaps even a hated RINO (Republican in Name Only.)  But it surely it contributed to the GOP’s rather decisive drubbing at the hands of Barack Obama and Social Security loving Democrats.

In 1980 Libertarian Party Vice  Presidential candidate David Koch railed against  Social Security.  35 years later he and his brother spend millions to undermine the program and support Republican candidates pledged to gut it.

This year the clown car posse of Republican presidential wannabes have mostly kept their yaps shut about Social Security even if their plans have not changed.  Libertarian darling Rand Paul is actually for abolition of the system, but you have to dig deep into his position papers and old speeches to safely conservative audiences to discover it.  Hapless Louisiana Governor Bobby Jindal, dragging bottom in the polls has tried to attract attention and support from deep pocket oligarchs by making noises about hitting the program.  Jeb Bush, the White Hope of party regulars and insiders as a supposed moderate  who could win a general election, showed himself to be a clone of his brother who pushed so-called reform and privatization by suggesting that lazy Americans need to work until they are 70 or beyond.  Should he somehow survive the swarm more-conservative-than-thou competitors in the primaries it is easy to see the Democratic attack ads pointing this out and the damage they will do.

Of course the demographics of a lot of Baby Boomers retiring together over the next few years in a kind of slow motion avalanche and the reduction of collection of FICA taxes after the economic collapse due to heavy unemployment and actually falling wages for those still employed has put a strain on the system, which could theoretically go bankrupt in a few years unless “something is done.”

But that something does not have to be further raises in the retirement age, reduction of benefits, privatization, or changing the system from social insurance to a means tested welfare program—the later program sometimes surprisingly advanced on the right knowing that it would erode support for the system among higher income voters.  

Senator Bernie Sanders has long backed a plan to keep Social Security solvent by raising the cap on income subject to FDIC taxes.

Bernie Sanders, the Independent Vermont Senator and proudly self-proclaimed socialist who has surged from being a snubbed dark horse challenger to virtually anointed Hillary Clinton to being the populist powerhouse, has long supported and proposed simple Social Security reforms that would keep the program safe and solvent well into the next century.  He points out that simply raising the cap on wage income subject to FICA taxes and/or levying FICA taxes on non-wage income above a certain level would do the trick. 

Given the situation it is not surprising that this year’s significant anniversary of the establishment of the Social Security System has attracted more than the usual attention.

Before it was enacted those who lived beyond their income producing years were the poorest sector of society, particularly those who could not rely on the support and/or charity of family.  And the necessity of supporting an elderly relative drove many young families into poverty because of the extra expenses and the foregone income of those who had to become caretakers. 

Today, those over 65 are the least likely of all age cohorts to live in poverty. 

The battle for Federal retirement insurance was a long one.  The first such scheme was advocated as early as the 1820’s by trade unionists and socialists in Europe.  German Chancellor Otto Von Bismarck implemented the first old age insurance plan in 1889 in the hope of achieving social stability in the new German Empire and uniting the loyalties of citizens of the various principalities he had brought together.  The German system provided contributory retirement benefits and disability benefits as well.  Participation was mandatory and contributions were taken from the employee, the employer, and the government.  It would become essentially the model for F.D.R.’s initiative. 

Social security plans had spread over Europe but were resisted as unwanted government interference in business in this country.  Social security, along with unemployment insurance, a government medical plan, the eight hour day, and limits to child labor were key planks of Eugene V. Debs’ Socialist Party platform of 1912.  It was widely supported by most of the labor movement, although some craft unions which had wrung private pension plans from employers were opposed.  

Roosevelt’s Secretary of Labor Frances Perkins spearheaded the drive for Social Security for the administration.  Republicans in Congress bitterly opposed the program, decrying it as socialist, un-American, unconstitutional, and a business destroying tax burden.  Sound familiar?  

But the program was still wildly popular with voters, who elected large majorities of Democrats committed to the program in both houses of Congress.  Some compromises, however, had to be made and the original system was far from perfect.  Nearly 50% of all workers were excluded from coverage including workers in agriculture, domestic service, government employees, and most teachers, nurses, hospital employees, librarians, and social workers. The act also did not cover those who worked intermittently including most seasonal workers. 

These provisions fell especially heavy on women and minorities who were disproportionately engaged in these occupations.  90% of all domestic workers were women and 2/3 of all employed Black women worked in domestic service.  And Southern Black men were predominately engaged as agricultural workers.  For these reasons the NAACP actually opposed the legislation that reached Roosevelt’s desk calling it, “a sieve with holes just big enough for the majority of Negroes to fall through.” Most women qualified for old age insurance only through their husbands.  Women’s payments under the system were based on the presumption that mothers would not be in the work force.

The Social Security Act also established the Aid to Dependent Children, a welfare program designed to support children in unemployed families who had exhausted unemployment insurance.  Management of these programs was left to the States, at the insistence of Southern Democrats who did not want to disturb the racial status quo.  As a result Southern states routinely adopted rules making it difficult or nearly impossible for Black families to qualify. 

This became one of the major reasons, along with increased employment opportunities as the country geared up for war later in the decade, for the Great Migration of rural Southern Blacks to Northern cities. 

In 1937 the Social Security withholding tax went into effect and the system began building reserves to make the first payments to retirees, originally scheduled for 1942.  Some economists charged that the income taken out of circulation by the tax was responsible for the 1937 Roosevelt Recession.  Others have pointed to drastic reductions in Federal spending because of budget concerns and because key elements of the New Deal had been declared unconstitutional as being the real culprit in the downturn.  Some felt that building a huge reserve before beginning to make pay-outs was a drag on the economy.  

A poster promoting the 1939 Amended Social Security Act.

So in 1939 Social Security was amended to begin making payout two years earlier than planned.  This caused the plan to become de facto a pay as you go system with current workers supporting the immediate benefits to retirees instead of relying of a large accumulated fund.  The amendments did establish a trust fund for any surplus funds managed by the Secretary of the Treasury. The money could be invested in both non-marketable and marketable securities. 

But because this trust fund became a Treasury Department asset, Congress later began to borrow against it to fund current general spending.

Amendments to the act also tied women’s benefits more closely than ever to their husband’s income. The amendment added wives, elderly widows, and dependent survivors of covered male workers to those who could receive old age pensions. These individuals had previously been granted lump sum payments upon only death or coverage through the Aid to Dependent Children program. 

While this rescued many widows from poverty, the amendments also devalued the value of benefits a woman could receive from her own labor.  If a married wage-earning woman’s own benefit was worth less than 50% of her husband’s benefit, she was treated as a wife, not a worker and the dependents of women who were covered by Social Security benefits were ineligible for her benefits.  Changes were also made to the Aid to Dependent Children program, including raising the age of eligible children to 18. 

Ida Mae Fuller receives first Social Security check.

Despite being far from perfect, the first monthly payment was issued on January 31, 1940 to Ida May Fuller of Ludlow, Vermont.