Original social security program

On August 14, , the Social Security Act established a system of old-age benefits for workers, benefits for victims of industrial accidents, unemployment insurance, aid for dependent mothers and children, the blind , and the physically handicapped. The Social Security Act of excluded from coverage about half the workers in the American economy. Among the excluded groups were agricultural and domestic workers —a large percentage of whom were African Americans.

An act to provide for the general welfare by establishing a system of Federal old-age benefits, and by enabling the several States to make more adequate provision for aged persons, blind persons, dependent and crippled children, maternal and child welfare, public health, and the administration of their unemployment ….

This particular record, belonged to John D. Sweeney, Jr. The next day, newspapers around the country announced that Sweeney had been issued the first SSN. Roosevelt in , 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. Today, about million people work and pay Social Security taxes and about 64 million people receive monthly Social Security benefits.

The original Social Security Act of set the minimum age for receiving full retirement benefits at Congress cited improvements in the health of older people and increases in average life expectancy as primary reasons for increasing the normal retirement age. Although these benefit increases were ad hoc, they set the stage for the automatic inflation adjustments applied to benefits today. In a pay-go framework, benefit increases require increases in payroll tax revenue.

The taxable maximum also referred to as the wage base , which is the maximum level of annual earnings to which the payroll tax is applied, rose by 60 percent during the s, and the combined payroll tax rate climbed from 2.

The payroll tax increase in was to fund the new Disability Insurance program. Initially, to hold down costs, disabled-worker benefits were limited to persons between the ages of 50 and 64 and were received by a relatively small number of persons around , in Today, disabled workers can be of any age under the full retirement age , and they number more than 5. Another change in the benefit structure, although affecting relatively small numbers of beneficiaries initially, occurred in the s and set an important precedent.

Women but not men were allowed to receive actuarially reduced retirement benefits as early as the age of The s witnessed several changes to the Social Security program, but, in a sense, they followed the path laid out by the amendments of the s. By the end of the decade, benefit levels had been increased twice 7 percent in and 13 percent in , the combined payroll tax had reached 8.

Finally, men were allowed to claim actuarially reduced retirement benefits at the age of 62, and the disability program was expanded to all ages under Of course, the largest change in social insurance occurred not in the cash benefit programs, such as Social Security, but rather in the area of health insurance: the Medicare program was initiated in The s were a watershed decade in program history.

Benefit increases legislated by Congress accelerated sharply in the early s, which when combined with difficult economic conditions and a fully mature Social Security program caused concern about the program's financial status. These concerns culminated in the first large-scale legislative efforts to control program size the amendments of From that point forward, Social Security debates have no longer focused on expanding the program on a large scale but rather on limiting program growth or finding additional sources of revenue.

General benefits increased by 15 percent in January and by 10 percent in January Legislation in provided another 20 percent increase in benefits. A separate piece of legislation enacted that year increased the basic benefit rate for aged widow er s from In addition, in , policymakers created a special minimum benefit, which was designed to help long-term, low-earning workers.

A regular minimum benefit already existed and had since the program's beginning , but it was often paid to workers who had short careers in covered employment rather than to workers who had low annual earnings. Legislation in froze the amount of the regular minimum benefit, and, 4 years later, it was abolished for newly eligible beneficiaries.

The special minimum benefit continues to this day, although it affects a small and declining number of beneficiaries. It is important in a policy sense, however, because many current Social Security reform proposals have specific provisions that would increase benefits for low lifetime earners. Although a 20 percent general benefit increase was paid in , legislation in that year also incorporated provisions that would replace ad hoc increases with automatic adjustments based on price growth.

Support for automatically linking benefit increases to inflation was provided by a variety of policymakers, including those who feared that the ad hoc approach led to a "political bidding up" of benefit levels Myers , The legislation also called for adjusting taxable maximum amounts automatically on the basis of wage growth. As it turned out, the technical approach to automatically adjusting benefit amounts was flawed, which provided successive cohorts of retirees with rapidly increasing benefit amounts.

The flawed method was corrected by the amendments of , but individuals eligible for benefits before were allowed to keep the windfall benefits, and those workers retiring as late as were partially protected under transitional guarantees. Program costs as a percentage of gross domestic product GDP peaked in at about 5 percent. To put this in perspective, program costs as a percentage of GDP are projected to rise by about 2 percentage points during the next 25 years Board of Trustees , Table VI.

F5 —a period that covers the retirement of the large baby-boom generation. When discussing program expansion, it is worth mentioning the creation of the federal Supplemental Security Income program in This program replaced the means-tested old-age assistance programs that originated with the Social Security Act of as well as the assistance programs for the disabled that occurred after In , 4.

Thus, the Social Security expansions begun in the s along with the natural maturing of the program ended any debate over whether income security for the elderly and disabled would primarily be handled through means-tested programs. By the end of the s, and in reversal of the situation in , means-tested programs for these groups had been eclipsed by a far more muscular Social Security program.

Nevertheless, means-tested programs still serve an important role: they supplement the contributory social insurance programs by providing a minimum floor of income. The last major amendments to the Social Security Act occurred in The trust fund buildup has reignited debates, not heard since the s, about reserve funding.

The amendments of , to a large extent, followed the recommendation of the National Commission on Social Security Reform commonly known as the Greenspan Commission after its chairman Alan Greenspan.

The difficulties that led to the creation of the Greenspan Commission were economic in nature and largely unforeseen. Following the amendments of , forecasts indicated that the system would be characterized by marginally adequate funds in the near term and surpluses in the s and early 21st century. The economic conditions of the late s and early s exposed the near-term vulnerabilities of the amendments of Myers This period was characterized by higher-than-expected inflation which increased benefit payments and lower-than-expected wages which lowered payroll tax receipts.

At the time of the Greenspan Commission, projections indicated that, by July , revenues and trust fund assets would be insufficient to make benefit payments National Commission on Social Security Reform , Appendix J. It recommended and Congress adopted extending coverage to newly hired federal workers, subjecting a portion of Social Security benefits to income taxation and dedicating the revenue to the trust fund , accelerating scheduled increases in the payroll tax rate, and delaying cost-of-living adjustments from June until December of each year.

The commission concluded that, even without changes, the program would begin to run surpluses starting in the s. The commission's recommendations, however, augmented those surpluses substantially. Finally, the commission discussed, but could not reach a consensus on, how to deal with long-range fiscal problems associated with the baby-boom generation. Some members supported an increase in the full retirement age under Social Security, while others supported future tax increases.

Ultimately, Congress adopted a phased-in increase in the full retirement age beginning in The surpluses are invested in and the trust fund holds special-issue Treasury bonds. Echoing some of the debate in the early years of the program, considerable discussion has centered on whether the government truly saves the current Social Security surpluses. The trust funds are clearly assets to the Social Security program and provide the legal authority to pay benefits once expenditures outstrip revenues, but debate remains concerning the economic significance of the surpluses.

If, on the one hand, the surpluses have reduced government borrowing from the public, they can be linked to more funds available for private investment thereby spurring economic growth and, in addition, less public debt. Both outcomes put the government in a better position to deal with the retirement of the baby boomers, and thus, under this line of thought, the surpluses are saved.

If, on the other hand, Congress reacts to the presence of the surpluses by spending more or taxing less than it would otherwise do, the surpluses do not reduce public borrowing and are not truly saved. Schieber and Shoven , argue that it is unlikely that the surpluses are fully saved, even when one accounts for the additional possibility that government has spent some of the surpluses on public investments such as roads, education, and so on.

The authors suggest that "maybe half, at best" of the surpluses represent savings in an economic sense. They acknowledge, however, that it is difficult to answer the question definitively. Thus, in the policy and research communities, a wide range of views on the topic exist.

An interesting side note to the debate over the surpluses concerns the initial and subsequent intent of policymakers. There is evidence that policymakers in did not discuss the trust fund accumulation in terms of the saving argument just outlined.

Rather, to the extent that surpluses were considered, they may have been seen as safeguards from having to fix the program again in the near term. Policymakers were most likely stung by criticism in that the system needed an overhaul just 6 years after the amendments of The extent to which the Social Security surpluses increase national or aggregate saving is still an important if unresolved issue in the reform debate.

Although relatively minor in the context of the overall program, the recent period has seen consistent policy action in one area: changes to Social Security's retirement earnings test RET.

As noted earlier, the RET was initially an all-or-nothing feature that is, regular employment precluded benefit payment , which was applied at all ages. Over time, its features were liberalized, especially for older beneficiaries. The reasons for the liberalizations are many, but policymakers have shown a sustained concern over the long-run decline in labor force activity of older persons.

In , Congress sharply increased the exempt amounts for those at or above the full retirement age, and in , it completely eliminated the test for this group. Broadly, the history of the program can be divided into two periods: an expansionary period lasting approximately 40 years, which was followed by a period in which fiscal concerns were predominant.

The original Act provided only for retired-worker benefits; today, benefits are payable to family members and divorced spouses. Further, Social Security originally covered only workers in commerce and industry about half the workforce at the time , whereas more than 95 percent of jobs are now covered under the program. Benefit levels, which in the early years were often below amounts payable under old-age assistance programs administered by the states, have risen dramatically.

Before the s, benefit payments were well under 1 percent of GDP , but thereafter they expanded rapidly. As a percentage of GDP , benefit payments peaked in at about 5 percent and now stand at 4. By , Social Security's claim on the economy is expected to rise to 6. In , about 1 in 50 Americans received Social Security; currently, 1 in 6 does.

After , the number of beneficiaries relative to the total population begins to level off, however Chart 3. National Academy of Social Insurance. Poor Relief in Early America. But if you see something that doesn't look right, click here to contact us! Subscribe for fascinating stories connecting the past to the present.

The Glass-Steagall Act, part of the Banking Act of , was landmark banking legislation that separated Wall Street from Main Street by offering protection to people who entrust their savings to commercial banks. Millions of Americans lost their jobs in the Great Depression, Socialism describes any political or economic theory that says the community, rather than individuals, should own and manage property and natural resources.

Roosevelt that aimed to restore prosperity to Americans. When Roosevelt took office in , he acted swiftly to stabilize the economy and provide jobs and relief The Securities and Exchange Commission, or SEC, is an independent federal regulatory agency tasked with protecting investors and capital, overseeing the stock market and proposing and enforcing federal securities laws.

The Great Depression was the worst economic downturn in the history of the industrialized world, lasting from to It began after the stock market crash of October , which sent Wall Street into a panic and wiped out millions of investors.

Over the next several The s in the United States began with an historic low: more than 15 million Americans—fully one-quarter of all wage-earning workers—were unemployed.

President Herbert Hoover did not do much to alleviate the crisis: Patience and self-reliance, he argued, were all Americans When economist Edwin Witte helped develop the Social Security Act of , the numbers were solely a way to keep track of the new retirement payment system. Witte and his The Lend-Lease Act stated that the U. Live TV. This Day In History. History Vault. Early Social Assistance in America Economic security has always been a major issue in an unstable, unequal world with an aging population.

Impact of The Great Depression The Great Depression left millions of people unemployed and struggling to put food on the table. The bill included: Recommended for you. How the Union Defended Washington, D. During the Civil War. Daniel Webster. Franklin D. Roosevelt Creates Social Security. Roosevelt's New Deal. He summoned Secretary Perkins to the White House on the afternoon of the 16th to tell her that there must be some mistake in the actuarial tables because they showed a large federal subsidy beginning in When informed that this was no mistake, the President made it clear it was indeed a mistake, although of a different kind!

He told the Secretary to get to work immediately to devise a fully self-sustaining old age insurance system. The report was transmitted to the Congress on the 17th as the President had promised, but the actuarial table in question was withdrawn until it could be reworked.

And so, Social Security was from its first day of operation a fully self-supporting program, without any general revenue funding. But FDR's sense of purity was ultimately left behind when Congress voted the first subsidy provisions to be added to Social Security.

Ever since World War II it was recognized that there was a problem for people who entered the service of their country in the military.

Immediately following World War II Congress passed a brief change to Social Security which provided some small general revenues to pay benefits to WWII veterans who had become disabled in the years immediately following the War and who did not qualify for a veterans benefit. Since military wages were not covered employment until , spending several years in the military would result in reduced Social Security benefits.

Even after military service became a form of covered employment, the low cash wages paid to servicemen and women meant that military service was also a financial sacrifice. As a special benefit for members of the armed forces the Congress decided to grant special non-contributory wage credits for military service before and special deemed military wage credits to boost the amounts of credited contributions for service after These credits were paid out of general revenues as a subsidy to military personnel.